Second Disaster Relief Fund 'Customized' Direction... Expected to be Paid Before Chuseok

Party-Government Agreement Expected to Be Finalized
About 7 Trillion Won, Half of the First Phase Total Scale
Likely Limited to Self-Employed and Unemployed Facing COVID-19 Difficulties
Tax Cuts and Non-Financial Support Also to Be Provided

A store in Seoul's Mangwon Market with a notice indicating that disaster relief funds can be used [Photo by Yonhap News]

[Asia Economy Reporters Kwangho Lee and Eunbyul Kim] The Democratic Party of Korea and the government have virtually settled on providing the second round of disaster relief funds as 'tailored payments.' The total amount is expected to be around 7 trillion won, about half the size of the first round. The recipients are likely to be limited to small business owners, self-employed individuals, low-income groups, and unemployed people who have been struggling due to the COVID-19 pandemic, rather than being based on income criteria.

According to the National Assembly and government on the 3rd, the ruling party and government will hold a consultation meeting as early as today to finalize the scale and recipients of the second disaster relief fund. There is also speculation in political circles that the emergency economic meeting chaired by President Moon Jae-in next week will announce plans to distribute the second disaster relief funds before Chuseok.

Inside and outside the government, households classified as 'below the near-poverty line,' which are under 50% of the median income, are being discussed. These households account for about 25% of all households, estimated at around 5 million households. When the government prepared the first supplementary budget in March, it prioritized income support for this group. Even if not classified as near-poverty households, small business owners, self-employed individuals, and unemployed people who have seen a sharp drop in sales due to COVID-19 are also likely to be included in the support targets. In particular, in addition to cash support, financial assistance such as emergency loans for operating funds and non-financial support like rent and tax reductions will be provided concurrently.

The total scale of the second disaster relief fund is expected to be around 7 trillion won, half the size of the first round. This amount is sufficient to provide disaster relief funds to households in the lower 50% income bracket. It was also the scale the government initially advocated for during the first payment.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said regarding the method of distributing the second disaster relief funds, "It is desirable to provide tailored financial support to vulnerable groups such as small business owners, self-employed individuals, or low-income groups," adding, "We plan to finalize this through consultations this week." Lee Nak-yeon, leader of the Democratic Party of Korea, has also consistently upheld the principle of tailored payments. At a press conference on the 31st of last month, Lee said, "We will discuss the 'COVID-19 emergency support' plan within this week," and "We are seriously considering a plan to provide tailored emergency support to those who suffer more and face serious threats to their livelihoods." On the 2nd, during a visit to Mangwon Market in Mapo-gu, Seoul, he stated, "We are trying to increase the size of this supplementary budget as much as possible," and "We are in the process of increasing it much more than what the financial authorities originally thought."

The ruling party and government’s consideration of tailored payments instead of universal payments is interpreted as an effort to minimize the scale even if a fourth supplementary budget is prepared. The government has injected 58.9 trillion won through three supplementary budgets this year. In the process, it restructured the main budget to secure more than 10 trillion won. In other words, the money needed for the fourth supplementary budget must rely on issuing government bonds, which will inevitably accelerate the deterioration of fiscal soundness. The debate surrounding this issue is expected to intensify further.

Meanwhile, some, including Gyeonggi Province Governor Lee Jae-myung, still advocate for universal payments. They argue that since fiscal soundness is currently at a relatively good level compared to advanced countries, increasing debt is acceptable. Governor Lee emphasized, "Selective payments misunderstand the nature of disaster relief funds and violate the constitutional principle of equality, potentially causing division and conflict among the people." He argues that the nature of disaster relief funds is economic policy, and it is fair for all citizens to benefit from policy support. Kim Sung-hoe, spokesperson for the Open Democratic Party, proposed on the 2nd in a statement that the second disaster relief funds be distributed to all citizens, saying, "Disaster relief funds are a small encouragement that the state provides. All citizens should be encouraged." He added, "Disaster relief funds can have the effect of stimulating the economy, but their effect of encouraging the people is even greater. To encourage the people, it is only right to encourage all citizens."

There are also many criticisms that distributing the second disaster relief funds is inappropriate while the COVID-19 situation is still ongoing. Professor Andong-hyun of Seoul National University’s Department of Economics pointed out, "Even if the disaster relief funds are distributed differentially, people will inevitably spend externally, which may conflict with quarantine measures," and added, "We need to consider what the goal is in the COVID-19 era and think about support methods that are friendly to quarantine." Professor Ahn cited examples such as providing incentives to local bakeries and pastry shops excluded from operational restrictions when social distancing levels are raised, encouraging them to comply with measures by giving support to help them endure.