The Government Already Using Contingency Funds... Growing Momentum for Supplementary Budget Formation

5 Trillion Won Allocated from Purpose Reserve for Special Employment and Corporate Taxi Driver Support
Government Denies Supplementary Budget... Possibility Grows Due to New Year COVID-19 and By-Election Variables

[Asia Economy Reporter Jang Sehee] With the prolonged COVID-19 pandemic, the likelihood of repeated government support payments is increasing. Since nearly 5 trillion won of contingency funds will be used from the beginning of the new year, it seems inevitable that an additional supplementary budget (supplementary budget) will be drafted next year.

◆ Using earmarked contingency funds and funds to support special employment types and corporate taxi drivers = The scale of the government's third disaster relief fund has tripled compared to the initially expected level. Although 3.4 trillion won was allocated in next year's budget, the support targets and scale greatly exceeded this amount. Accordingly, 600 billion won unused this year, 4.8 trillion won of earmarked contingency funds, and 500 billion won from funds were newly included as resources for this support measure.

The government states that since it will not issue government bonds immediately, it does not have to bear debt burdens. However, the problem arises after the third disaster relief fund is paid. If contingency funds and funds run out while COVID-19 is still rampant, additional fiscal input will become inevitable.

One of the resources for this support fund, the Employment Insurance Fund, has already turned into a deficit. The government plans to provide support payments from earmarked contingency funds to insurance planners (up to 1 million won) and corporate taxi drivers (500,000 won), and raise the employment retention support rate for workers in restricted or prohibited businesses to 90% for three months. The unpaid leave support payment period will also be extended by three months, providing a total of 1.5 million won per person. As a result, the Employment Insurance Fund's deficit is expected to expand from 3.26 trillion won this year to 3.3215 trillion won next year.

◆ COVID-19 and by-election variables everywhere... weight on supplementary budget drafting = Since earmarked contingency funds are being used from the beginning of the year, fiscal management could face difficulties if unexpected disasters occur next year. Although the government currently does not consider a supplementary budget, there is a possibility that if mega-disasters such as heavy rain, floods, heavy snow, or earthquakes occur, another supplementary budget may be needed to support affected groups again.

Data showing that supplementary budgets have typically been drafted in election years also adds weight to the possibility of a supplementary budget next year. Since 2000, the government has drafted supplementary budgets in all six general elections except once (in 2012). In 2012, no supplementary budget was drafted due to concerns about fiscal soundness following a large-scale supplementary budget in 2009. The habitual drafting of supplementary budgets has increased expenditure burdens. The scale of supplementary budgets, which was only 2.3 trillion won in 2000, has grown to 66.9 trillion won this year. Next year, by-elections for the mayors of Seoul and Busan will be held, which are as important as general elections.

Accordingly, voices expressing concern about fiscal soundness are expected to grow. The national debt ratio relative to GDP is 43.9% at the end of this year and 47.3% based on next year's budget. However, if another supplementary budget is drafted next year, the national debt ratio could surpass 50%.

Experts view that if the COVID-19 situation worsens further, additional fiscal input will be unavoidable and advise alternatives besides supplementary budgets. Professor Kim Sangbong of Hansung University’s Department of Economics said, "Assuming COVID-19 lasts until February next year, support measures may need to be issued again," adding, "Rather than supplementary budgets that harm fiscal soundness, the budget should be reallocated."

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