'Nationwide Disaster Relief Fund' Ignited by the Ruling Party…Will the Ministry of Economy and Finance Be Dragged Along Again?

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] The ruling party, the Democratic Party of Korea, is once again igniting the debate over providing nationwide disaster relief payments, emphasizing COVID-19 response and economic recovery. The Ministry of Economy and Finance, the main budget authority, has repeatedly expressed opposition, pointing out issues such as the limited effectiveness of universal support payments. However, considering the payment procedures so far, the possibility of being swayed by the ruling coalition's logic has increased.

Lee Nak-yeon, leader of the Democratic Party of Korea, stated at the Supreme Council meeting held at the National Assembly on the 4th, "Once the COVID-19 situation calms down to some extent, nationwide support can be provided to stimulate the economy." This remark came at a time when the government’s customized damage support measures worth 9.3 trillion won for COVID-19 response had not yet been executed even a single won by the end of last month. Gyeonggi Province Governor Lee Jae-myung also emphasized in a letter addressed to the Minister of Economy and Finance on his social media that "to overcome the economic crisis, universal payments through local currency should be made."

If the ruling party’s claim to re-push nationwide disaster relief payments is realized, the formation of a supplementary budget (extra budget) will become inevitable. This is also why the Ministry of Economy and Finance has consistently expressed reservations about universal payments. The government has already formed four supplementary budgets in 59 years since 1961 for COVID-19 response last year. Starting with 11.7 trillion won in March during the early spread of the crisis, followed by 12.2 trillion won in April (2nd), 35.1 trillion won in June, and 7.8 trillion won in September (4th). Adding the 9.3 trillion won damage support measures (including loan projects) announced last month by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, which he called "virtually the 5th supplementary budget," the government has poured over 76 trillion won into COVID-19 response beyond the original 2020 budget.

If the recently mentioned nationwide disaster relief payment is pushed at a scale similar to the 2nd supplementary budget (the 1st disaster relief payment), about 7.6 trillion won in budget will be required based on a 1 million won payment for a family of four. Since the 2021 main budget has already been prepared reflecting the COVID-19 situation, expenditure restructuring seems impossible, making debt-financed supplementary budgeting through government bond issuance virtually unavoidable.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is announcing a customized damage support plan in response to the third wave of COVID-19, including emergency disaster relief funds, at the briefing room of the Government Seoul Office in Jongno-gu, Seoul, on the 29th. From the left, Yang Seong-il, 1st Vice Minister of Health and Welfare, Park Young-sun, Minister of SMEs and Startups, Deputy Prime Minister Hong, Lee Jae-gap, Minister of Employment and Labor, Eun Sung-soo, Chairman of the Financial Services Commission. Photo by Kang Jin-hyung aymsdream@

The problem is that public opinion is predominantly negative regarding the effectiveness of nationwide disaster relief payments. The Korea Development Institute (KDI), a government-funded research institute, released research results showing minimal support effects for affected industries. In its recent report "Effects and Implications of the 1st Emergency Disaster Relief Payment Policy," KDI analyzed that the sales increase effect in eligible industries from the 1st emergency disaster relief payment was at most 36.1% relative to the total budget input. About 70% of the disbursed support funds were instead used for debt repayment or savings. The institute also urged the establishment of a precise support system that analyzes the damage scale by economic agents and identifies affected groups, as the situation may require repeated emergency disaster relief payments due to COVID-19 resurgence.

Experts also argue that focusing support on directly affected groups is a support method that actually preserves 'universality.' Professor Kang Sung-jin of Korea University’s Department of Economics emphasized, "If the spread of COVID-19 is controlled, latent consumption will naturally revive," adding, "At that time, support should be concentrated on groups that suffered more severe damage and cannot recover on their own." Professor Kang added, "Providing the same amount of money explicitly regardless of the degree of damage may reduce the support amount for affected groups and exacerbate inequality."

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