[2nd Supplementary Budget] Controversy Over Cashback Usage Restrictions: "No to Large Supermarkets, Yes to University Tuition"

Government Excludes Department Stores, Large Marts, and Online Shopping Mall Consumption
Experts Say "It's Only an Effect of Pulling Forward Next Year's Consumption"

[Asia Economy Reporter Jang Sehee] Controversy is expected to arise over the usage scope of the credit card cashback program promoted by the government. Contrary to the original intention of helping small business owners, additional spending now includes university tuition fees. In particular, there are concerns that the effect of additional consumption will not be significant due to restrictions on where the cashback can be used.

The government's '2021 2nd Supplementary Budget' announced on the 1st includes a win-win consumption support fund that refunds cashback for increased card usage. This policy returns 10% of the amount exceeding a 3% increase compared to the average monthly card usage in the 2nd quarter (April to June) as cash-equivalent points. For example, if the average monthly card usage in the 2nd quarter was 1,000,000 KRW and 1,530,000 KRW was spent on the card in August, the difference of 530,000 KRW minus 30,000 KRW (3% of 1,000,000 KRW) equals 500,000 KRW, and 10% of that, 50,000 KRW, will be refunded as cash-equivalent points.

◆Including University Tuition Fees Despite Aiming to Revive Local Small Businesses= Contrary to the government's intention to boost consumption in local small businesses, 'university tuition fees' will also be included as additional spending. Although universities do not fall under small business owners or self-employed categories, they are considered additional consumption. However, department stores, large marts, online shopping malls, luxury brand stores, entertainment establishments, and vehicle purchases are excluded from the payment targets. Lee Eokwon, 1st Vice Minister of Strategy and Finance, said, "Consumption at department stores and luxury brands has continued well even during the COVID-19 situation," adding, "The goal is to increase consumption in face-to-face services and other areas that declined due to COVID-19." However, Hong Namki, Deputy Prime Minister and Minister of Strategy and Finance, stated, "If university tuition fees are paid by card, it is considered an expenditure, and we do not intend to exclude such consumption." He argued that if the focus is only on additional consumption rather than difficult expenses, large marts and department stores should also be included.

◆Cannot Prevent Abuse by Consolidating Spending= If family members who had low consumption in the 2nd quarter consolidate their card usage, the household may receive cashback benefits even if their total consumption in the 3rd quarter does not increase compared to the 2nd quarter. The government’s basic stance is that debit and credit cards are generally used by the cardholder, but since there is no verification of whether the card is actually used by the owner during consumption, there is effectively no way to prevent this.

◆Benefits Concentrated Among High-Income Earners, Regressive Issue= Credit cards are mainly used by those with relatively higher spending power. High-income earners receive more benefits, raising concerns about regressivity. Professor Kim Soyoung of Seoul National University’s Department of Economics pointed out, "The structure benefits high-income earners who use cards more," adding, "Supporting only additional consumption through cards is also unfair in terms of equity."

◆Merely Pulling Future Consumption Forward= Deputy Prime Minister Hong expected the cashback program to have an effect of stimulating private consumption worth about 11 trillion KRW. If card usage reaches about 10 trillion KRW, private consumption is expected to increase by about 0.2 to 0.3 percentage points. Experts, however, point out that the actual consumption effect will not be significant. Professor Kim Taegi of Dankook University’s Department of Economics said, "If usage is restricted, the effect is limited," adding, "Since the share of small business owners in consumption is not large, the effect will not be as much as the government expects." He also predicted, "It will only have the effect of pulling next year’s consumption into this year." Professor Kim Soyoung of Seoul National University’s Department of Economics said, "People will not buy more just because they get a 10% discount," adding, "The consumption incentive effect is small, so it is merely substitution consumption."

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