Will Full Loss Compensation for Small Business Owners Expand... Additional Fiscal Investment Inevitable?

Prime Minister Kim Boo-kyum "Seriously reconsidering 80% loss recognition rate"

The prolonged COVID-19 crisis has deepened the worries of small business owners and self-employed individuals. A closed store in Myeongdong, Seoul. Photo by Mun Ho-nam munonam@

[Sejong=Asia Economy Reporter Son Seon-hee] The government is considering expanding the compensation rate for losses incurred by small business owners due to COVID-19 quarantine measures. Currently, up to 80% of the loss amount is compensated, and the plan is to increase this rate. Lee Jae-myung, the Democratic Party presidential candidate, is advocating for "100% full compensation." Since a significant portion of the budget for loss compensation, already secured based on an initial compensation of 5 million won, is expected to be exhausted, additional fiscal input is ultimately inevitable.

According to the government on the 10th, a plan to raise the current 80% loss recognition rate due to quarantine measures is under review. Following last month's increase of the quarterly minimum payment for loss compensation from 100,000 won to 500,000 won, the intention is to raise the loss recognition rate itself to provide more substantial overall support. Prime Minister Kim Boo-kyum appeared on a broadcast program the day before and said, "There was a strong issue raised about 'why only 80% of the damage amount is given,'" adding, "We intend to seriously reconsider this matter." Regarding the extent of the increase, he expressed a cautious stance, saying, "We will review together whether it will be 80%, 90%, or if there are losses that have not been properly identified even at the current 80%." However, he dismissed the possibility of retroactive compensation for losses before July 2020 (the time of related law enactment), which small business groups have demanded, stating, "There is none at this time."

If the loss recognition rate increases, it will be difficult to cover the costs with the already secured budget, and additional fiscal input will be necessary. The government initially allocated 2.2 trillion won for loss compensation in this year's main budget. In addition, last month, when announcing the "three major support packages for small business owners," an additional 1 trillion won was added, preparing a total of 3.2 trillion won.

However, the funds required for the already announced "5 million won preliminary loss compensation for 550,000 small business owners" alone amount to 2.75 trillion won. Although the difference will be converted into ultra-low interest loans for recovery depending on the actual loss amount later, the repayment period will take five years. Furthermore, with the addition of 120,000 businesses subject to personnel and facility restrictions beyond those regulated under current law for "closure and business hour restrictions," the required funds have increased further. The government has stated it will mobilize not only the allocated budget but also funds and reserves, but reserves could be depleted from the beginning of the year.

Ultimately, as the scale of loss compensation expands, the weight of drafting an additional supplementary budget (supplementary budget) early in the year increases. Last year's excess tax revenue is expected to exceed the government's estimate (19 trillion won) by 7 to 8 trillion won, and it is anticipated that these funds will be utilized. Regarding this, the Ministry of Economy and Finance stated, "The 2021 national tax revenue performance is currently being compiled and has not yet been finalized."

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