[Initial Reaction] The 35 Trillion Won Supplementary Budget Is a Warm Iced Americano

Opposition Party Demands Emergency Budget for Livelihoods Citing Difficult Economic Conditions
Amid Concerns Over Revenue Shortfall, Opposition Should First Consider Revenue Reduction Supplementary Budget

"One warm iced Americano, please."

Although I usually enjoy hot coffee, during these sweltering summer days, I thought I should have iced coffee, which led to this absurd response. I don't remember the temperature of the coffee I reordered at that time. However, the phrase "warm iced Americano" was brought up recently as the Democratic Party of Korea has been insisting day after day that an additional supplementary budget (supplementary budget) must be prepared.

The background of the Democratic Party's demand for a supplementary budget is as follows. In an economic crisis where both exports and domestic demand are sluggish, prices are rising, and the lives of ordinary people are becoming tougher due to interest rate burdens, the government's role is crucial. With the occurrence of water disasters, calls for a supplementary budget have grown louder. On the 18th, Park Kwang-on, floor leader of the Democratic Party of Korea, said, "We have strongly requested the preparation of a supplementary budget, and now that the flood damage has exceeded imagination, the necessity for a supplementary budget has become clearer." This means the government’s warm fiscal role is needed. Before the water disaster, the supplementary budget proposed by the Democratic Party had already reached 35 trillion won.

Although demands for supplementary budgets from the political sphere have been frequent during economic crises, this year is different from previous years. This year, tax revenues have decreased, raising doubts about whether even the already allocated budget can be covered by taxes. There is no expectation of surplus tax revenue to draw on for the supplementary budget. This situation has already been confirmed by numbers. National tax revenue from January to May decreased by 36 trillion won compared to last year. The Bank of Korea recently disclosed through its first-quarter financial flow data that the government borrowed 31 trillion won from the Bank of Korea this year. While the government has occasionally used the Bank of Korea like an overdraft account, this year’s amount is the largest ever.

The fiscal authorities also acknowledge that "tax revenue shortfall this year is an unavoidable situation." The government plans to conduct a tax revenue re-estimation from the end of next month to early September and has revealed plans to secure an additional 15 trillion won plus alpha through policy finance and public institutions. Nevertheless, experts predict that a revenue reduction revision, which cuts the budget itself, will be inevitable this year. In the National Assembly’s Planning and Finance Committee, concerns have been openly raised that the government may have entered a de facto austerity by implicitly withholding budget execution to save money.

So far, economic experts within the Democratic Party have voiced calls for a revenue reduction supplementary budget. They argue that the government should reduce or revise revenue budgets through a revenue reduction supplementary budget and issue deficit bonds. However, the Democratic Party leadership has gone a step further, demanding fiscal spending through the supplementary budget to support vulnerable groups affected by energy and interest rate hikes. They also argue that when domestic demand is sluggish and tax revenue decreases, expanding spending to overcome the situation is the basic principle of national finance. Simply put, they propose issuing more national bonds, which are government debt, to help struggling livelihoods.

However, the issue that needs careful consideration is the feasibility of the supplementary budget. With all fiscal policy tools being mobilized due to tax revenue shortages, it is difficult to find resources to meet the opposition party’s supplementary budget demands other than national bonds. But this could further destabilize the already fragile bond market following last year’s Korea Electric Power Corporation (KEPCO) bond incident. It is obvious that if a large-scale issuance of national bonds occurs, demand will flock to safe assets. The financial market has already revealed vulnerabilities through incidents like the Legoland case. If the financial market shakes and leads to an economic crisis, the ordinary people’s economy will worsen further. This is why the Democratic Party’s 35 trillion won supplementary budget claim, under the pretext of caring for people’s livelihoods, is as paradoxical as a "warm iced Americano." It is time to wisely consider the issue of insufficient tax revenue first.

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