[Weekly Review] Controversial '88% 국민 Support Fund' to be Paid by End of Next Month... 2Q Korea Growth Rate 0.7%

[Sejong=Asia Economy Reporter Son Sun-hee] After a tug-of-war between the ruling party and the government, the COVID-19 coexistence national support fund has finally passed the National Assembly. It will be paid at 250,000 KRW per person, targeting about 88% of the entire population. The government plans to expedite the payment preparations as much as possible to support the livelihood economy severely hit by the fourth wave of COVID-19, aiming to distribute the funds as early as the end of August or by September at the latest.

◆Support fund eligibility: Single-income 4-person households with health insurance premiums below 308,000 KRW = On the 26th, the government held the 3rd meeting of the whole-government task force (TF) for the 2nd supplementary budget, chaired by Ando-geol, Vice Minister of Strategy and Finance, with related ministries including the Ministry of Strategy and Finance and the Ministry of the Interior and Safety, and announced the specific payment criteria for the national support fund.

The national support fund is available if the combined health insurance premium for June is within the bottom 80% (about 180% of the median income standard). For single-income households, the thresholds are 191,100 KRW for 2-person households, 247,000 KRW for 3-person households, and 308,300 KRW for 4-person households (based on workplace subscribers).

Special exceptions apply to single-person households and dual-income households. The thresholds are 143,900 KRW for single-person households, 247,000 KRW for 2-person dual-income households, 308,000 KRW for 3-person dual-income households, and 382,000 KRW for 4-person dual-income households. For dual-income households, the health insurance premium standard is applied as if the household size is increased by one person.

However, even if these criteria are met, households whose total property tax base exceeded 900 million KRW last year or whose total financial income (including interest and dividends) exceeded 20 million KRW are not eligible for the support fund. For jointly owned properties by couples, the 900 million KRW tax base standard applies.

Due to the special exceptions for single-person and dual-income households, the final number of eligible households increased by 1.78 million from the government's original plan to 20.34 million households, approximately 44.72 million people. With the expanded eligibility, the required budget was finalized at 11 trillion KRW, an increase of 600 billion KRW from the previous 10.4 trillion KRW.

◆2021 Tax Reform Bill finalized... 1 trillion KRW tax credit for 'semiconductors, batteries, vaccines' = The Ministry of Strategy and Finance announced the finalized tax reform bill for next year. A total tax credit exceeding 1 trillion KRW will be applied for research and development (R&D) and facility investments in the three major 'national strategic technologies'?semiconductors, batteries, and vaccines. From the second half of this year until the end of 2024, for three and a half years, tax credit rates of 30-40% for large and medium-sized enterprises, 40-50% for small and medium enterprises, and for facility investments, 6% for large enterprises, 8% for medium-sized enterprises, and 16% for small and medium enterprises will be applied respectively.

Additionally, the income eligibility ceiling for the Earned Income Tax Credit (EITC) was raised by 2 million KRW per household, significantly expanding the beneficiaries. The ceilings are raised to 22 million KRW for single-person households, 32 million KRW for single-income households, and 38 million KRW for dual-income households. About 300,000 households falling into the revised brackets will newly receive the EITC next year, with an estimated tax expenditure of approximately 260 billion KRW.

The government estimates that the tax reform this year will reduce tax revenue by 1.5 trillion KRW over the next five years. This is the first tax cut since the Moon Jae-in administration began, but it sparked controversy because the benefits are expected to favor large corporations with substantial facility investments more than low-income and middle-class households.

◆Q2 growth rate 0.7%... Q3 outlook uncertain = In the second quarter, the Korean economy grew by 0.7%, showing a faster-than-expected recovery. According to the preliminary data on '2021 Q2 real Gross Domestic Product (GDP)' released by the Bank of Korea on the 27th, the real GDP for April to June was 475.7625 trillion KRW, up 0.7% from the previous quarter. This marks four consecutive quarters of growth since Q3 last year. Thus, the growth rate for the first half of this year is 3.9%. If the growth rates for Q3 and Q4 each reach 0.7%, an annual growth rate of 4.0% is achievable.

However, it is still premature to be optimistic about the growth trend. With the fourth wave of COVID-19 in Korea intensifying in the second half of the year, social distancing measures have been raised to the highest level (in the metropolitan area), raising concerns that the economy will suffer significant damage.

Meanwhile, the International Monetary Fund (IMF) has revised its forecast for Korea's economic growth rate this year upward to 4.3%. However, this only partially reflects the recent quarantine situation.

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