"Isn't This a Waste of Taxes?" Controversy Over Daegu's 2nd Round of 100,000 Won Per Person Support Payment

Mayor Kwon Young-jin "100,000 KRW per person, payment expected late August to early September"
Citizens "Populist policy", "Should focus on long-term measures"
Experts "Disaster relief funds negative... Even if implemented, should be selectively distributed based on income brackets"

Photo by Yonhap News

[Asia Economy Reporter Kim Su-wan] As the government has provided emergency disaster relief funds of up to 1 million KRW per household since May to overcome the novel coronavirus infection (COVID-19) crisis, Daegu City has decided to provide a second round of emergency livelihood funds to all citizens, sparking controversy.

Some criticize the additional disaster relief payments as a waste of tax money, while others argue that it is merely a populist policy that does not help regional revitalization.

In particular, since Daegu City's financial independence ratio has been deteriorating every year, there are concerns that the so-called 'handout-style' disaster relief support will rather worsen the city's finances.

The financial independence ratio refers to the proportion of a local government's own revenue (local taxes and non-tax revenue) excluding grants from the central government. A higher financial independence ratio indicates better financial self-sufficiency.

Daegu City has decided to provide the second round of livelihood funds to all citizens in response to COVID-19.

On the 16th, Mayor Kwon Young-jin announced the second Daegu City emergency disaster relief support plan at Daegu City Hall. Mayor Kwon stated, "We decided to provide the second support fund to offer a small consolation to citizens who have endured the long period of hardship and to alleviate the shock to the regional economy caused by COVID-19."

The city secured a total budget of 243 billion KRW, including 191.8 billion KRW from the city budget and 51.2 billion KRW from national funds. To secure the budget for the second emergency livelihood fund, the city has mobilized disaster countermeasure funds, the remaining local government matching funds for the government's emergency disaster relief, and conducted high-intensity structural adjustments on expenditure budgets of various departments since last month.

He further explained, "While budgeting, we allocated 243 billion KRW so that 100,000 KRW per person could be distributed, but the final decision on the payment procedure, timing, and amount will soon be confirmed by the Committee for Supporting Low-Income Livelihoods."

Although the specific support methods and procedures have not been decided, the payment is expected to be made around the Chuseok holiday.

Kwon Young-jin, Mayor of Daegu. Photo by Yonhap News Agency

The problem is that Daegu City's financial independence ratio is lower than that of other local governments, and providing the second disaster relief fund may cause difficulties in financial management. Especially since Daegu was the hardest hit by the COVID-19 crisis, there are calls to save the budget and establish long-term measures.

As of 2020, metropolitan local governments exceeding the national average financial independence ratio of 50.4% include Seoul Metropolitan Government Headquarters (81.4%), Sejong Special Self-Governing City Headquarters (64.8%), Gyeonggi Province Headquarters (64.8%), Incheon Metropolitan City Headquarters (59.8%), Ulsan Metropolitan City Headquarters (56.2%), Busan Metropolitan City Headquarters (54.8%), and Daegu Metropolitan City Headquarters (50.5%). However, even this shows that Daegu is lower compared to other metropolitan local governments.

Moreover, Daegu City's local financial independence ratio is 50.5% at the headquarters level but only 26.2% on average at the district and county offices. Furthermore, it has been declining year by year: 56.6% in 2017, 54.2% in 2018, and 51.6% last year.

Consequently, the second disaster relief payment in Daegu is criticized as populism. Since Daegu already made the first payment in early April, the second payment is considered excessive. The first support targeted approximately 434,000 households with a median income of 100% or less, providing between 500,000 KRW and 900,000 KRW depending on household size.

A 28-year-old office worker, Mr. A, said, "It's nice to receive the support money, but honestly, I don't know its effect. Didn't we already receive it during the first round?" He added, "This time it's only 100,000 KRW, which is not even pocket money and won't be a big help to household finances."

Mr. A also said, "It would be better to use the money for something that actually helps the city. Please don't waste taxes on unnecessary things and properly take care of the allowances for medical staff who are struggling due to COVID-19."

Regarding the amount of support, there are also calls to use it for regional revitalization. A 57-year-old office worker, Mr. B, said, "Daegu's second emergency disaster relief fund is worse than not giving anything. I think the money should be invested in the region instead."

Photo by Yonhap News

On the other hand, there are also welcoming responses to the additional emergency disaster relief payments. On the Blue House's public petition board, a petition titled "Daegu Emergency Disaster Relief Fund, even a small amount should be given to all Daegu citizens" was posted.

The petitioner stated, "Daegu is a disaster area, and all Daegu citizens are struggling. Daegu has many small-scale self-employed people and many small and medium-sized enterprises with low wages. There are many citizens who struggle even with 100,000 or 200,000 KRW. I think Daegu should also give even a small amount to all Daegu citizens."

Daegu City explained that the second support payment is intended to console Daegu citizens who have been most affected by the COVID-19 crisis. A city official told Asia Economy, "There are pros and cons regarding the disaster relief payments, but since it is paid with combined national funds, there is no major problem. I think the positive aspects of this second disaster relief fund outweigh the negative ones."

He added, "Consumption has contracted, and citizens are extremely fatigued due to COVID-19. The biggest purpose is emotional consolation."

Experts expressed concerns about local governments' plans to provide a second emergency disaster relief fund. Professor Lee Eun-hee of Inha University's Department of Consumer Studies said, "How long can we keep distributing money to drive the economy? I have a somewhat negative view of the second disaster relief fund. Even if additional payments are made, since all consumers already received it in the first round, support should be selectively provided to those below the 50% income bracket."

There is also an analysis from a national research institute that selective support tailored to household characteristics is more effective than cash payments to the entire population during the economic crisis caused by the spread of COVID-19.

The Korea Development Institute (KDI) stated in its report "Household Liquidity Risk Assessment and Policy Implications" that "Support to mitigate household liquidity risk is effective when income and assets are considered together to selectively support income or credit." It means that targeting vulnerable households for payments is more effective in risk mitigation.

Senior Research Fellow Kim Young-il of KDI, who conducted the study, explained, "If the number of COVID-19 confirmed cases rapidly increases again, we might reconsider disaster relief payments, but even then, distinguishing between vulnerable and non-vulnerable households is better for alleviating household financial difficulties and reducing the government's fiscal burden."

This content was produced with the assistance of AI translation services.