Government Formalizes Second Supplementary Budget... Lifting the Lower Leg of K-Shaped Polarization (Comprehensive)

Deputy Prime Minister Hong Namki Formalizes Second Supplementary Budget Proposal
Focuses on Supporting Vulnerable Groups Rather Than Stimulating Consumption
Additional Tax Revenue to Be Used as Funding... Expected to Avoid Fiscal Soundness Controversy

Hong Namki, Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance, is delivering opening remarks at the 'Meeting of Research Institute Heads and Investment Bank Experts' held at the Government Seoul Office in Jongno-gu, Seoul on the 4th. Photo by Kang Jinhyung aymsdream@

[Asia Economy Kim Hyunjung (Sejong), Jang Sehee] The government's official announcement on the 4th to draft a second supplementary budget is seen as a preemptive measure aimed at minimizing “K-shaped polarization” during the economic recovery. Rather than providing broad support to stimulate consumption, the plan is to focus funding on vaccine supply, employment, and vulnerable groups affected by the pandemic, in line with the Moon Jae-in administration’s repeatedly emphasized goal of “inclusive growth.”

Hong Namki, Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance, held a meeting with research institute heads and investment bank experts at the Government Seoul Office on this day. He set the goal of the supplementary budget as “complete economic recovery accompanied by employment recovery and strengthened inclusiveness,” stating, “This supplementary budget review will focus on disaster response measures such as vaccine supply and inoculation, domestic demand and employment measures for the second half of the year, and support measures for vulnerable and affected groups such as small business owners impacted by the COVID-19 crisis.” The intention is to use government support to raise the lower leg of the “K” representing vulnerable groups.

The mention of support measures centered on affected groups, rather than universal disaster relief payments aimed at reviving domestic demand, is in the same context. While the ruling Democratic Party of Korea is discussing a large-scale supplementary budget that includes universal disaster relief payments to boost domestic demand across the board, the government has officially drawn a line against this approach. As a result, there is a growing possibility of discord arising during policy discussions between the government and the ruling party.

By utilizing additional tax revenue as funding, the government is expected to sidestep controversy over fiscal soundness. Deputy Prime Minister Hong emphasized, “A significant amount of additional tax revenue is expected due to economic recovery conditions that differ from initial tax projections, additional tax revenue from the asset market, and an increase in unexpected tax revenue,” and added, “The funding for this supplementary budget will basically be sourced from this additional revenue without issuing extra deficit-financing government bonds.”

The government’s review of a supplementary budget accelerated following President Moon Jae-in’s directive during the “2021 National Fiscal Strategy Meeting” on May 26. At that time, President Moon stressed that the excess tax revenue collected in the first quarter of this year (19 trillion won) should be used to address the polarization caused by COVID-19.

The supplementary budget proposal is expected to be unveiled at the end of this month through the announcement of the economic policy direction for the second half of the year. On this day, Deputy Prime Minister Hong emphasized the significance of this year’s economic policy direction to research institute heads and investment bank experts, stating, “The second half of this year is a bridge period of great significance, marking the full-scale transition of our economy.” He also stressed, “It is a time that separates the return to normal life after overcoming the COVID-19 crisis and distinguishes between the pre-COVID and post-COVID eras from the perspective of economic structure.” Regarding the significance of this year’s policy direction, he explained, “To achieve the goal of a rapid and robust recovery for our economy in the second half, it must include concrete policy prescriptions and tasks.” He added, “As the recent economic recovery trend may result in sectoral imbalances-a so-called ‘K-shaped recovery’-after the COVID-19 crisis, we must strive for a ‘complete recovery’ that includes employment recovery and strengthened inclusiveness.”

This supplementary budget proposal is also expected to include various support measures for youth, who are classified as a vulnerable group in terms of employment. In addition to job creation, support measures for housing and asset formation are also reportedly being considered.

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