'3rd Disaster Relief Fund' Ignites Debate in National Assembly, Why Does the Government Oppose?

①Reviewing next year's main budget at the National Assembly... Physically challenging
②Fiscal conditions have already significantly worsened
③Social conflicts and administrative waste with each payment
④Limited effectiveness of direct subsidies

[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Kim Hyun-jung and Jang Se-hee] Although the political sphere has ignited discussions on providing a '3rd Emergency Disaster Relief Fund' due to the resurgence of the novel coronavirus infection (COVID-19), the Ministry of Economy and Finance, the main responsible department, is expressing reluctance. This is because it is difficult to secure the budget for the 3rd disaster relief fund under the National Assembly Act while the National Assembly has entered the review process for next year's main budget. In particular, the fact that enormous fiscal resources were spent during the distribution of the previous two disaster relief funds, and that social costs such as public opinion division were incurred while the actual consumption stimulation effect was limited, strengthens this stance.

On the 24th, a senior government official showed a cautious attitude regarding the 3rd disaster relief fund, saying, "We are not considering it at all while preparing for next year's budget review." As the government raised the social distancing level to Level 2 in the metropolitan area starting at midnight that day, damage to small business owners and self-employed individuals is expected. The political sphere is immediately raising claims for the payment of the 3rd disaster relief fund.

Currently, the National Assembly is reviewing next year's main budget of 556 trillion won submitted by the Ministry of Economy and Finance. The legal deadline for passing the budget bill is December 2nd, leaving less than ten days including the weekend. The 'super budget' for COVID-19 response and the Korean New Deal is already causing friction between the ruling and opposition parties over fiscal soundness during the review process. A Ministry of Economy and Finance official emphasized, "It is physically difficult to re-examine the budget for the 3rd disaster relief fund," adding, "We are focusing on passing the submitted budget bill, and procedurally under the National Assembly Act, (the disaster relief fund) cannot be considered."

[Image source=Yonhap News]

There are also voices saying that support funds cannot be distributed every time linked to the social distancing level amid already severely deteriorated fiscal conditions. According to the 'Monthly Fiscal Trends November Issue,' total government revenue until September this year was 354.4 trillion won, a sharp decrease of 5.1 trillion won compared to the same period last year. On the other hand, total expenditure increased by 48.8 trillion won to 434.8 trillion won due to the formulation of four supplementary budgets. National debt reached 800.3 trillion won, increasing by more than 100 trillion won compared to last year.

There is also an opinion that disaster relief funds provoke unnecessary social conflicts. In fact, the previous two disaster relief funds received criticism for wasting administrative power during the urgent disaster situation of quarantine, as public opinion was divided over the recipients, scale, and payment methods. Along with this, research and analysis results that show the limited effect of direct support funds when considering the fiscal multiplier (an indicator showing the correlation between government spending and GDP growth) are also noteworthy. According to the Korean Economic Association, the fiscal multiplier of transfer payments like disaster relief funds, which give cash directly to the public, is only 0.6 to 0.7. The Korea Institute of Public Finance stated in its report 'Economic Effects of Government Spending Reflecting Expected Effects (Fiscal Forum November Issue, Deputy Researcher Kang Dong-ik)' published that day, "There is inevitably a certain time lag between the policy announcement and the actual execution of spending," and "GDP somewhat decreases between the policy announcement and execution."

There is also an opinion that in situations where face-to-face contact is difficult, the focus should be on enhancing the private sector's self-resolution capabilities. Professor Sung Tae-yoon of Yonsei University's Department of Economics emphasized, "It is difficult for support funds to be effective because face-to-face consumption is difficult," adding, "We need to move away from the perception that problems can be solved through fiscal spending." He especially added, "We should focus on how to enable the private sector to operate even under COVID-19 circumstances."

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