The 2nd Supplementary Budget Prioritizes Political Logic Over Economy... Effectively Nationwide Support Payments

-National Support Fund, Only Excluding Ultra-High Income and Asset Owners
-Small Business Support Sectors Include Travel Product Sales, Hanbok, and Doljanchi Photography to Cover Blind Spots
-Relaxed Sales Criteria for Business Crisis Sectors to '10% Decrease'

[Asia Economy reporters Son Seon-hee (Sejong) and Jang Se-hee] The core project of the second supplementary budget (supplementary budget) and the one with the largest amount of funding, the COVID-19 coexistence national support fund, is likely to expand the payment target from the existing bottom 80% income bracket to virtually the entire population. Although the financial authorities maintained a selective support stance until the last moment, the ruling party, facing an upcoming election, pushed through by overturning the existing party-government agreement, resulting in the government seemingly yielding.

According to the government and the National Assembly on the 23rd, during the review process of the supplementary budget by the National Assembly Budget and Accounts Special Committee, a plan to provide the national support fund excluding only some ultra-high-income earners and high-net-worth individuals was reportedly actively discussed. This is similar to the method used during the first disaster relief fund last year, effectively making it a 'support fund for all citizens.' A plan to exclude high-income earners with an annual salary of 150 million KRW or more, comprehensive real estate tax payers, holders of financial assets above a certain scale, and high-ranking public officials from the payment target was considered. Yoon Ho-jung, floor leader of the Democratic Party of Korea, pressured the government by saying, "Now is the time to make a bold decision," even on the day of the plenary session. The government and the National Assembly held meetings past midnight the previous night and resumed meetings promptly from 7 a.m. on the day of the plenary session, moving urgently.

◆Pain over additional 2.5 trillion KRW funding= The problem is the funding. If the previously announced "250,000 KRW per person" is maintained, about 2.5 trillion KRW in additional funding will be required. There were reports that a plan to lower the support amount to between 200,000 and 230,000 KRW was also considered, but it has not been finalized and is still being adjusted at the last moment. The ruling party even suggested withdrawing a 2 trillion KRW debt repayment plan, but the government firmly opposes this considering concerns about the bond market. A government official stated, "Debt repayment will proceed as originally planned."

As the scope of the national support fund expands, the coexistence consumption support fund (credit card cashback), designed by the government to stimulate consumption and included in the supplementary budget, is naturally expected to be reduced. A total of 1.1 trillion KRW was allocated to this project, but some of it is likely to be cut and used for other project funds. There were also suggestions during discussions to completely withdraw the cashback, but the government emphasized the need for 'consumption recovery,' so the project itself is likely to be maintained.

◆Expansion of support for business crisis sectors= Support for small business owners affected by COVID-19 will be significantly expanded in terms of target and amount. Since the COVID-19 situation has lasted over a year and small business owners have been pushed to the limit due to the recent elevation of social distancing to level 4 in the metropolitan area, there is consensus among both ruling and opposition parties as well as the government on this point. According to the Democratic Party, a plan was proposed to include travel-related businesses (travel product sales and agencies) and first birthday party-related businesses (rental of first birthday tables, hanbok rental, first birthday photography), which were previously excluded from the support target industry classification. Additionally, to support self-employed individuals who suffered sales damage but were excluded from loss compensation (business suspension or restriction), a plan to expand the 'business crisis sector' condition from a '20% decrease' in sales to a '10% decrease' is also under discussion.

Ultimately, to cover the increased support funds, the total amount of the supplementary budget may be increased. However, since the government has declared "no additional borrowing," it is expected that additional funds will be drawn from the main budget and fund resources, which have low execution rates. The ruling party, opposition, and government have expressed differing positions on this, and final negotiations are ongoing.

However, there is concern that the tax revenue trend in the second half of the year may look completely different from the first half due to the fourth wave of COVID-19. This is because the value-added tax (VAT), one of the three major tax bases, could significantly decrease due to the elevation of social distancing levels. When the Ministry of Economy and Finance prepared the second supplementary budget, it projected this year's total excess tax revenue at 31.5 trillion KRW, but if VAT, which ranks second among total tax revenues, decreases, the overall tax revenue will be affected.

A government official said, "Due to social distancing, group gatherings have decreased, so VAT is directly affected first," and added, "This will impact the scheduled VAT filing in October." Furthermore, "If COVID-19 continues through the second half of this year, tax revenue could be affected until January next year." VAT payments are made in January, April, July, and October, and the business period from July to September, which corresponds to the fourth wave, must be paid in October. If sales of self-employed small business owners decrease, naturally tax revenue collection will also decline.