Hong Nam-ki "No Consideration for Nationwide Disaster Relief Fund"... Party and Government Still at Crossroads

Park Wan-joo, Democratic Party Policy Committee Chair
Supplementary Budget Scale 'Up to 35 Trillion Won'
Deputy Prime Minister Hong Clarifies "Additional Tax Revenue Scope, Timing, and Content Not Yet Finalized"

Decision to Use 2 Trillion Won Excess Tax Revenue for Debt Repayment
Criticism of Token Gesture

[Asia Economy Reporters Kim Hyunjung and Jang Sehee] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated that "the government is not considering providing disaster relief funds to all citizens," making conflict between the ruling party and the government inevitable after discussions on the supplementary budget (추경) next month. This is because the government once again expressed a negative opinion regarding the Democratic Party of Korea's demand for a supplementary budget exceeding 35 trillion won, including nationwide disaster relief payments. However, the government has internally decided to allocate up to 2 trillion won from the supplementary budget for debt repayment.

On the 23rd, Deputy Prime Minister Hong appeared at the National Assembly's Planning and Finance Committee plenary session and responded to a question from People Power Party lawmaker Choo Kyung-ho about whether disaster relief funds would be provided to all citizens, saying, "The government is not considering (supporting all citizens)." He added, "In consultations with the party, discussions are progressing toward providing substantial support to the affected groups."

◆ "Low 30 trillion won range" vs. "Up to 35 trillion won" = The ruling party and government showed differing views on the size of the supplementary budget. When asked directly about the amount by Democratic Party lawmaker Jung Il-young, Deputy Prime Minister Hong said, "We are preparing the supplementary budget within the scope of excess tax revenue," and added, "I think it will be in the low 30 trillion won range."

This is a more conservative approach compared to the ruling party's official position, announced the previous day by Park Wan-joo, the Democratic Party's Policy Committee Chair, who stated the supplementary budget could be "up to 35 trillion won." Deputy Prime Minister Hong explained, "Since the supplementary budget is being prepared within the range of additional tax revenue, there will be no increase in national debt," and said, "We are working with the goal of submitting it to the National Assembly in early July."

The government is also keeping tight-lipped about the specific supplementary budget plan, saying it is "under consultation." Regarding Park's announcement the previous day about providing nationwide disaster relief funds between late August and September, including 1 trillion won worth of credit card cashback (partial refunds on credit card payments) and support for small business owners in August, the government drew a clear line, saying, "Nothing has been finalized." A Ministry of Economy and Finance official expressed concern, saying, "Mentioning specific timing and amounts before finalization only adds confusion," and warned, "We must be cautious not to fuel conflicts by raising unnecessary expectations and disappointments."

◆ Using 2 trillion won of excess tax revenue for debt repayment... Criticism of token gesture = The ruling party and government have agreed to use up to 2 trillion won from the additional resources raised through national tax revenue (32.7 trillion won as of April this year), surplus funds (1.7 trillion won), and various funds to repay debt in the supplementary budget.

The main method to reduce national debt is to cut planned government bond issuance (186.3 trillion won for the first supplementary budget), of which deficit bonds (general account deposits) currently amount to 104 trillion won. Early redemption (buyback) of government bonds issued by the state is also possible. The amount maturing this year is 45.4 trillion won, but under the Moon Jae-in administration, early redemption using excess tax revenue occurred only in 2017 (1.2 trillion won) and 2018 (4 trillion won). The Ministry of Economy and Finance expects significant benefits as the absolute amount of debt decreases. A government official said, "Whether through buybacks or reducing bond issuance, the total debt and debt-to-GDP ratio will ultimately decrease," adding, "It will be done considering interest rate smoothing and market conditions."

However, since debt repayment is expected to account for only about 6% of total tax revenue, criticism that this is merely a 'token gesture' is likely to continue. National debt, which was 660 trillion won when the Moon administration began in 2017, has increased to 965.9 trillion won this year and is projected to reach 1,091.2 trillion won by the end of the term in 2022.

Professor Lee In-ho of Seoul National University's Department of Economics pointed out, "Spending 2 trillion won on debt repayment is essentially just for show," adding, "The excess tax revenue is not from increased income tax due to economic recovery but from asset-related surplus income, so it is unlikely to be sustained." He further said, "Fiscal spending is rigid and does not decrease once it starts," and added, "It is better to reduce fiscal spending from the outset."

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