[Work Review] Government and Ruling Party Consider 'Operating Profit Basis' for Loss Compensation System

Prime Minister Chung Sye-kyun is delivering opening remarks at the 'Central Disaster and Safety Countermeasure Headquarters Meeting for COVID-19' held on the 29th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Sejong=Asia Economy Reporter Kwon Haeyoung] The Democratic Party of Korea and the government are considering a plan to compensate losses of industries affected by business suspension and restriction measures based on operating profit rather than sales revenue.

◆"The basis for the loss compensation system should be operating profit, not sales revenue"＝On the 27th, Prime Minister Chung Sye-kyun stated regarding the principle of the loss compensation system for self-employed individuals, "The spirit of the Constitution is to compensate for damages based on operating profit rather than sales revenue." He explained, "Some small business owners may have high sales but low profits, while others may have low sales but high profits, so the compensation target should be operating profit."

Currently, the Democratic Party is reviewing a plan to set the compensation standard based on profit rather than sales revenue, and to compensate at a fixed rate depending on the type of business suspension or restriction. The plan is to provide differentiated compensation at rates such as 30%, 50%, or 70% of the existing profit according to the type of restriction. Retroactive application will not be made, and for damages already incurred by self-employed individuals, the government is leaning toward compensating through the 4th disaster relief fund before April. It is reported that the scale of the 4th relief fund may exceed the 14.3 trillion won scale of the 1st relief fund.

◆Last year's economic growth rate -1%... first negative in 22 years since the Asian Financial Crisis＝According to the Bank of Korea, last year's real Gross Domestic Product (GDP) was 1,830.5802 trillion won, a 1% decrease from the previous year. This is the first time in 22 years since the Asian Financial Crisis in 1998 (-5.1%) that Korea's economic growth rate (GDP growth rate) has recorded a negative figure.

Although the government loosened fiscal policy to overcome the COVID-19 economic crisis, the export shock in the first half of the year was severe, and social distancing measures due to the spread of COVID-19 continued, making negative growth unavoidable. Private consumption decreased by 5%, and exports fell by 2.5%, the largest decline since 1989 (-3.7%). To prevent economic downturn, the government actively increased fiscal spending, resulting in a 5% increase in government consumption.

◆Last year's industrial production -0.8%... first-ever negative＝Due to the impact of COVID-19, industrial production recorded a negative figure for the first time ever last year. According to the 'December 2020 and Annual Industrial Activity Trends' released by Statistics Korea on the 29th, the total industrial production index decreased by 0.8% compared to the previous year. This is the first time since statistics began in 2000. The sharp decline in service industry production, which was directly hit by COVID-19, had a significant impact, with large decreases in accommodation and food services (-18.5%), transportation and storage (-14.2%), and arts, sports, and leisure (-33%) due to social distancing measures causing a sharp drop in sales.

Manufacturing production increased by 0.5%, thanks to semiconductors, which are the backbone of the economy. Semiconductor production rose by 23.9% year-on-year, machinery and equipment increased by 5.5%, while automobile production decreased by 10.2%. On the other hand, due to sluggish domestic demand caused by COVID-19, retail sales decreased by 0.2% last year, marking the largest decline in 17 years since 2003 (-3.1%), when the Korean economy was contracted due to the credit card crisis.

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