[In-Depth Review] Beyond Disaster Relief, Compensation for Self-Employed Losses Needed

Baek Juseon, Attorney at Law, Yungpyeong Law Firm

"Is there any bureaucrat in the world who worries about the nation's treasury running empty but lets the people's coffers go dry?"

As the COVID-19 pandemic prolonged and business restrictions extended, small and medium-sized self-employed business owners demanded drastic measures from the government, voicing this concern. They argued that the 2nd and 3rd rounds of disaster relief funds were applied only to small business owners with annual sales under 400 million KRW, leaving most self-employed people without actual benefits. Regarding the government and ruling party's plan to compensate for business losses, they demanded that compensation be applied to all business establishments regardless of the number of employees and be retroactively applied to last year's losses to cover actual damages. They even filed a constitutional complaint, claiming that the absence of loss compensation regulations for business suspensions or restrictions aimed at preventing infectious diseases is unconstitutional. Article 23 of our Constitution stipulates that when the state expropriates, uses, or restricts citizens' property rights for public necessity, just compensation must be provided, and all such matters must be prescribed by law. It is often said that special sacrifices require special compensation, and compensating citizens who sacrificed for the national community is essential for the survival of that community.

The estimated economic loss due to the COVID-19 crisis is at least 134 trillion KRW annually, an enormous amount compared to the 3.4 billion KRW loss from Typhoon Danas and the 4.2 trillion KRW loss from Typhoon Maemi. In comparison, the disaster relief funds provided by the government last year were 14.3 trillion KRW for the first nationwide round, and 7.8 trillion KRW and 9.3 trillion KRW for the selective 2nd and 3rd rounds, respectively. Although the scale is unprecedented, it is far too small compared to the actual or continuously expected losses. Especially for small and medium-sized self-employed businesses severely affected by gathering bans and business restrictions, business loss compensation is essential beyond temporary disaster relief funds. Despite this constitutional requirement, no legislation has been enacted over the past year. However, it is fortunate that recently ruling party members, including Min Byung-duk, have proposed a special law to compensate for business losses caused by the COVID-19 crisis.

Major OECD countries have also implemented various support policies for small businesses, small merchants, and the self-employed. Regarding business loss compensation, Japan adopted a compromise approach where businesses could choose to suspend operations voluntarily and receive compensation of 60,000 yen (approximately 800,000 KRW) per day without mandatory measures. Germany based compensation on expected revenue, the UK on previous income, and Denmark provided monetary support as a certain percentage of sales decline. Italy, Canada, and Denmark supported a certain percentage of rent, while the United States responded more broadly through tax deductions and the use of withheld employee taxes. These countries are expected to pursue more proactive fiscal policies as the situation evolves.

South Korea's consolidated fiscal balance ratio relative to GDP is managed at a better level compared to major countries, and the national debt ratio is stable at about 40%, while major OECD countries exceed 100%. The national debt ceiling in 2020 was 256.5%, but the national debt as of September 2020 was only 44.5%, leaving fiscal capacity equivalent to 212% of GDP. There is no fiscal strain. Considering these circumstances, it is constitutionally appropriate and fiscally feasible for the government to compensate self-employed business owners for business losses more actively and promptly. This will undoubtedly help overcome the economic crisis caused by the COVID-19 pandemic.

Baek Ju-seon, Attorney at Law, Law Firm Yungpyeong

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