Government Finally Decides on Debt-Financed 'Snowflake Supplementary Budget'

Excess Tax Revenue Can Only Be Used After Settlement... Deficit Bonds Likely Issued from Early Year
Fiscal Authorities Initially Refuse Supplementary Budget but Yield to Political Pressure
Opposition Criticizes Ruling Party for 'Money Politics' Ahead of Election

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance (center), and Kwon Deok-cheol, Minister of Health and Welfare (right), are attending a government joint briefing on the extension of quarantine measures and support for small business owners at the Government Seoul Office in Jongno-gu, Seoul, on the morning of the 14th. Photo by Kim Hyun-min kimhyun81@

[Sejong=Asia Economy Reporters Kim Hyun-jung, Son Seon-hee, Moon Chae-seok] The government is set to inject 14 trillion won through the fastest supplementary budget (supplementary budget) ever compiled ahead of the presidential election. Although nearly 30 trillion won in excess tax revenue occurred last year, it is difficult to use it before the settlement, so the government plans to take a ‘speed battle’ approach to respond to COVID-19 even if it means borrowing first. However, there is an interpretation that the government, which had strongly denied any supplementary budget compilation, eventually backed down due to political pressure and the unexpectedly large excess tax revenue. If a large-scale government bond issuance proceeds, interest burdens due to rising interest rates are also expected to increase.

On the 14th, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, held a joint government briefing at the Government Complex Seoul and announced plans to compile a supplementary budget of 14 trillion won, saying, "Through a ‘one-point supplementary budget’ limited to support for small business owners and quarantine, we will provide additional quarantine support funds to self-employed and small business owners." Previously, the government had decided to extend social distancing for a total of three weeks, including the Lunar New Year holiday, and judged that the business burden on self-employed and small business owners had increased, confirming support through supplementary budget compilation. The government plans to start preparing the related supplementary budget from next week and submit it to the National Assembly by the end of this month. This is the first time in the history of the National Assembly that a supplementary budget has been submitted in January.

The announcement on this day appears to have been strongly influenced by the extension of quarantine measures as well as the government’s ‘tax revenue forecast error.’ The government eventually accepted the ruling party’s demand for supplementary budget compilation, which arose as about 10 trillion won more error occurred than the initially projected excess tax revenue (19 trillion won) by the Ministry of Economy and Finance. The Democratic Party of Korea has argued that the government should proactively respond considering nearly 30 trillion won in excess tax revenue as the damage is prolonged due to the spread of the Omicron variant. Deputy Prime Minister Hong said, "I bow my head in apology for the excessive excess tax revenue," but added, "Since excess tax revenue can be used after the settlement process, we will urgently support with deficit bonds first, considering this."

The extension of social distancing, which is expected to impact domestic demand such as face-to-face service industries, also became a justification for the supplementary budget. The Ministry of Economy and Finance expressed concerns in the ‘Recent Economic Trends (Green Book January issue)’ released on the same day, stating, "Externally, the global economic recovery trend continues, but uncertainties persist due to inflation, supply chain disruptions, the spread of variant viruses, and the possibility of accelerated monetary policy shifts in major countries," and "Policies such as social distancing are expected to affect domestic demand including face-to-face service industries."

The opposition party is reacting negatively, claiming this supplementary budget is a ‘vote-buying act’ aimed at the presidential election. Choogyeong-ho, the senior deputy floor leader of the People Power Party, criticized, "The Moon Jae-in administration and the Democratic Party are distributing national funds ahead of the election for ‘money politics,’" and pointed out, "The 608 trillion won budget has not even started to be executed yet." He also criticized the financial authorities, saying, "Succumbing to the Democratic Party’s pressure for supplementary budget demands clearly leaves a very humiliating legacy for the financial authorities."