The Democratic Party aims to provide the 4th disaster relief fund in March
Possibility of conflict rises over selective vs. universal payment methods
[Asia Economy Reporter Jang Sehee] The Democratic Party of Korea has proposed the payment of the 4th disaster relief fund instead of compensation for losses to self-employed business owners. They have determined that it will be difficult to provide compensation for losses to self-employed business owners by April and decided to maintain "support" instead of "compensation." However, the Ministry of Economy and Finance still believes that this will increase the burden on the national finances. Accordingly, concerns about the deterioration of fiscal soundness remain.
◆ Financing the 4th Disaster Relief Fund through Government Bonds = The Democratic Party has brought out the fourth disaster relief fund card because they believe the payment must be made by March at the latest. Park Sung-jun, the Democratic Party floor spokesperson, stated, "The immediate damage caused by COVID-19 should be addressed with the 4th disaster relief fund," adding, "It should be discussed in the February extraordinary session of the National Assembly and timed around March to serve as a catalyst for economic recovery."
In particular, the ruling party believes that the disaster relief fund is almost the only means available within the current law to provide support ahead of the Seoul and Busan mayoral elections in April.
The method of securing funds has been settled on issuing government bonds, following the proposal by Democratic Party lawmaker Min Byung-duk. Ultimately, to pay the 4th disaster relief fund, it is inevitable to issue deficit-covering government bonds through a supplementary budget. The scale of deficit-covering government bonds to be issued this year already amounts to 91.9 trillion won. Last year, an unprecedented four supplementary budgets were passed, issuing 104 trillion won in government bonds. The Korea Economic Research Institute recently forecasted that if the national debt ratio rises to 99.6% by 2045, the credit rating could be downgraded by two levels.
Regarding this, a government official said, "As the COVID-19 situation prolongs, the damage to self-employed business owners and vulnerable employment groups is increasing," adding, "We need to comprehensively consider the necessity of payment, feasibility of execution, and fiscal capacity."
◆ Already Emerging Concerns over the ‘Universal Disaster Relief Fund’ Debate = Attention is focused on the target recipients. With the April re-elections approaching, calls for providing a universal disaster relief fund citing "economic recovery" are expected to grow louder. Within the ruling party, Gyeonggi Province Governor Lee Jae-myung has emphasized giving disaster relief funds to all citizens, and a report prepared by the Democratic Research Institute, the Democratic Party’s think tank, also included proposals for universal coverage.
However, since Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "Government finances are not an inexhaustible source," the debate is expected to continue. Minister Hong has repeatedly emphasized the need to be cautious about the rapid increase in debt and expressed that it is preferable to selectively and robustly support the affected groups.
Experts also support the fiscal authorities’ stance. Professor Kim Sang-bong of Hansung University’s Department of Economics said, "Providing the 4th disaster relief fund to all citizens would strain the finances," and added, "Regarding the loss compensation system, the government should avoid direct fiscal input and instead support self-employed business owners through ultra-low interest loans and similar measures."
Meanwhile, compensation for losses to self-employed business owners has been deprioritized for now. With discussions on the 4th disaster relief fund underway, the plan is to prepare institutionalization measures during the February extraordinary session of the National Assembly.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
