[The Editors' Verdict] Supplementary Budget: The Start of Another War

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The 26.2 trillion won "war-related supplementary budget" is a product of an unprecedented speed-driven process. Less than two weeks after the outbreak of the Middle East war on February 28, President Lee Jaemyung ordered the supplementary budget on March 12. Just 17 days later, the draft was prepared and submitted to the National Assembly on March 31. The National Assembly also expedited its review, passing the bill in just 10 days, and the government presented and approved it at a Cabinet meeting the very next day, April 11.

Execution is also a race against time. The government designated 10.5 trillion won of the total supplementary budget for rapid disbursement, aiming to inject more than 85% within the first half of the year. Over the next three months, starting this month, more than 8.9 trillion won will be pumped into the market. The high oil price relief payments alone amount to 6.1 trillion won (4.8 trillion won from the central government and 1.3 trillion won from local governments). Eligible recipients include 32.56 million people in the bottom 70% income bracket based on health insurance premiums, 360,000 people who are near-poor or single parents, and 2.85 million basic livelihood security recipients-a total of 35.77 million people. Vulnerable groups such as basic livelihood security recipients will receive payments during April, while the rest of the public will be paid from May 18 after an income eligibility screening. Both the timing and scale of the policy response closely resemble the archetype of "crisis-responsive fiscal policy."

The budget also has a clear rationale. The unpredictable external shock of the Middle East war meets the legal requirements for a supplementary budget under the National Finance Act. Fiscal intervention is unavoidable in a situation where the triple pressures of high oil prices, a strong dollar, and supply chain disruptions are occurring simultaneously. Moreover, thanks to more than 25 trillion won in excess tax revenue, the government was able to secure funding without issuing additional government bonds, easing the political burden as well.

However, this is where the problems begin. Behind the phrase "debt-free supplementary budget" lies the fact that a tax revenue estimation error of about 25 trillion won occurred just three months into the fiscal year. As pointed out by the National Assembly Budget Office, this is not a simple error but an issue that undermines the credibility of the entire tax revenue estimation system. The government initially set a conservative tax revenue projection, which led to an excessive government bond issuance plan. As a result, there is criticism that the supplementary budget was made to "appear as if there is no additional government bond issuance" (according to the Fiscal Reform Institute), a point that cannot be easily dismissed.

It would not have been easy to precisely predict the current tax revenue situation when last year's budget was being drafted. However, the real problem is the recurring nature of these issues. The fact that there have been 16 supplementary budgets in the ten years since 2015 suggests the problem may be systemic rather than crisis-induced. Unless the forecasting system itself is reformed-for example, by requiring mandatory tax revenue re-estimation during the National Assembly's review process, reflecting the latest corporate and industry trends-this vicious cycle will inevitably continue. The entrenched pattern of immediately enacting supplementary budgets and distributing cash payments to support consumption every time there is an economic shock undermines fiscal credibility.

What is even more concerning is the emergence of calls for a second supplementary budget before the ink has dried on the first. Expectations for securing additional fiscal resources have grown as Samsung Electronics and SK Hynix are projected to achieve record-high operating profits this year. However, national debt has already surpassed 1,300 trillion won. An additional supplementary budget would likely lead to more deficit government bonds, creating further costs by undermining fiscal soundness. Nevertheless, there is no room for complacency. Most of the allocated budget is expected to be spent in the first half of the year, and the relief payments also have a usage deadline set for the end of August. If the war drags on, risks related to energy prices, the exchange rate, and supply chains could pressure the Korean economy once again. Conversely, even if the situation stabilizes quickly, it will take time for the aftereffects to be fully resolved. While there is no need to assume a second supplementary budget is inevitable, there is also no reason to rule it out entirely. Lee Kyungho, Economics Editor

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