Growing Support for 'Supplementary Budget Reduction Theory'... Inflation and Funding Challenges Mounting

Concerns Over Reduced Supplementary Budget Within Transition Team
Rising Inflation Increases Burden of Large Supplementary Budget
Worries About Decreased Support for Small Businesses... Attention on Budget Proposal

Yoon Suk-yeol, the president-elect of the 20th Republic of Korea, is delivering a congratulatory speech at the policy meeting on "Overcoming Complex Crises and Economic Security Vision for Becoming a Global Hub Nation" held at the Four Seasons Hotel in Jongno-gu, Seoul, on the afternoon of the 18th during the Seoul International Forum (SFIA). Photo by Transition Team Press Corps

The Presidential Transition Committee is reportedly seriously considering reducing the scale of the second supplementary budget for loss compensation for small business owners and self-employed individuals to around 35 trillion won, taking into account the recent trends of high inflation and high interest rates. It is becoming increasingly difficult to secure funds solely through expenditure restructuring, and with the recent deterioration of the macroeconomic situation, there is growing pressure to reduce the size of the supplementary budget.

According to political circles and the Transition Committee on the 19th, the committee is reviewing a plan to set the second supplementary budget at about 35 trillion won. President-elect Yoon Seok-yeol initially promised to allocate 50 trillion won for loss compensation to recover from the COVID-19 damage, but as inflation continues to soar and the macroeconomic situation worsens, there have been consistent opinions that it needs to be scaled down.

Lee Young, a member of the People Power Party and the nominee for the first Minister of the Ministry of SMEs and Startups under the new government, also said upon arriving at the Samhee Excon Venture Tower in Yeouido, Seoul, where his National Assembly confirmation hearing preparation office is located, "The Transition Committee itself has come to the conclusion that there is no need for the 50 trillion won scale," adding, "Because inflation is rising sharply, I understand that adjustments are being made as there could be economic shocks if the original plan is followed."

Within the Transition Committee, many believe that if the supplementary budget is set at 50 trillion won, the pressure from high inflation after the new government’s inauguration could intensify. The inflation rate remained around 2.5% last year but rose to 3% in November and surged to 4.1% in March this year, marking the highest level in over a decade.

The prolonged Ukraine crisis and the possibility of wage increases due to the return to normalcy after COVID-19 are expected to further strengthen inflationary pressures. In particular, if public utility fee hikes such as electricity and gas charges become fully implemented, the inflation burden felt by ordinary citizens will inevitably increase. The Hyundai Research Institute forecasted an inflation rate of 3.9% for this year in its "2022 Revised Outlook for the Korean Economy" released on the 17th, significantly exceeding the 3.1% forecast by the Bank of Korea, the institution responsible for inflation management.

The consumer price inflation rate in March soared to the 4% range for the first time in about 10 years. On the 5th, a citizen shopping at a large supermarket in downtown Seoul is seen doing their grocery shopping. Photo by Mun Ho-nam munonam@

The Transition Committee’s consideration of adjusting the supplementary budget amount also reflects the practical difficulty of securing funding. The committee has set a principle to minimize the issuance of deficit bonds considering fiscal soundness, but it is not easy to secure 50 trillion won solely through fiscal expenditure restructuring. The committee is reviewing budget cuts in the "Korean New Deal" project, which has a budget of 33.7 trillion won, but since it was emphasized as a key project by President Moon Jae-in, strong opposition from the Democratic Party of Korea is expected.

As a result, attention is focused on the decision of Deputy Prime Minister and Minister of Economy and Finance nominee Choo Kyung-ho, who is in charge of supplementary budget affairs within the committee. He has only announced plans to finalize the supplementary budget early next month and submit it to the National Assembly immediately after the new government’s inauguration, without disclosing the scale or funding methods. For nominee Choo, this means he faces the challenge of releasing funds through the supplementary budget while simultaneously stabilizing inflation, interest rates, and fiscal soundness. Upon his nomination as Deputy Prime Minister on the 10th, he said, "I will try to create a supplementary budget package that does not undermine efforts to stabilize the macroeconomy."

The Transition Committee is being tight-lipped about the supplementary budget. At a "One-Month Press Conference" held the day before, Transition Chairman Ahn Cheol-soo said regarding nominee Lee Young’s mention of reducing the supplementary budget scale, "He may not know the details about this (loss compensation)," adding, "The committee has received accurate data through the National Tax Service and the Ministry of SMEs and Startups and has made precise estimates based on the data."

In particular, Chairman Ahn said, "It is not only about loss compensation but also necessary to calculate additional costs for vaccine purchases and secure budgets for quarantine policies to prepare for the next pandemic," adding, "We have made our own estimates of the total amount and will announce it soon." If Chairman Ahn includes vaccine purchase costs in the supplementary budget, there is a strong analysis that support for small business owners may be reduced.

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