Yoon Pushes '10 Million Won Quarantine Support Fund'... Ministry of Economy and Finance Faces Another Supplementary Budget Dilemma

President-elect Yoon Suk-yeol. [Image source=Yonhap News]

[Asia Economy Sejong=Reporter Son Seon-hee] President-elect Yoon Seok-yeol’s push to provide the ‘10 million KRW quarantine support fund’ for small business owners and self-employed individuals, which was his key campaign pledge, has put the financial authorities?who have strongly opposed expanding the support fund?in a dilemma. If the quarantine support fund is additionally provided as per Yoon’s plan, an additional 19.2 trillion KRW in funding will be required. Moreover, if the first quarter loss compensation for this year is added, it will be inevitable to draft a supplementary budget (추경) requiring tens of trillions of won. The positions of the Presidential Transition Committee and the Ministry of Economy and Finance are sharply divided over how to secure the funding, and negotiations are expected to be difficult until the new government officially launches in May.

According to related ministries including the Ministry of Economy and Finance and the Ministry of SMEs and Startups on the 15th, amid the government’s strengthened quarantine measures since mid-December last year, the first quarter loss compensation for small business owners and self-employed individuals is scheduled to begin payment around May. The government is currently making main payments for the fourth quarter loss compensation of last year. Additionally, applications for the second quarantine support fund of up to 3 million KRW are ongoing until the 18th of this month.

Among this, President-elect Yoon visited a traditional market yesterday as his first field schedule after the election to meet small business owners struggling due to COVID-19. This was a move to emphasize his commitment to ‘fair and full loss compensation,’ which was his ‘number one pledge.’ His plan is to support small business owners with up to 50 million KRW proportional to the intensity of regulations and the extent of damage, and to pre-compensate half of the support amount based on administrative data held by the National Tax Service and local governments. Regarding the quarantine support fund, Yoon also declared at a press conference immediately after his election, "I will immediately provide an additional 6 million KRW separate from the existing government plan (3 million KRW), totaling up to 10 million KRW."

The budget spent by the government to provide the second quarantine support fund of 3 million KRW to 3.2 million small business owners and self-employed individuals through the first supplementary budget was 9.6 trillion KRW. If an additional 6 million KRW is provided as per President-elect Yoon’s plan, the required funding alone will reach 19.2 trillion KRW.

The financial authorities are extremely conservative about issuing additional deficit bonds due to concerns over fiscal soundness amid unprecedented external economic uncertainties caused by the Russia-Ukraine conflict. Since the beginning of the year, the issuance of deficit bonds has already increased by 11.3 trillion KRW for the supplementary budget, causing total expenditures this year to swell to 621.7 trillion KRW. Moreover, unlike last year, the revenue outlook for this year is not optimistic. There are concerns that if South Korea’s economy, which has been in emergency mode for the past two years, increases the fiscal deficit during the COVID-19 recovery phase, it could negatively affect the country’s credit rating. The Ministry of Economy and Finance has officially stated it will ‘respond and support preparations for the new government’s launch,’ but internally, there is deep concern as it would require completely overturning the principles it has upheld regarding fiscal spending.

Therefore, it is expected that the actual drafting of the supplementary budget to fulfill President-elect Yoon’s pledge will be discussed no earlier than after the new government’s launch in May. Earlier, Ahn Cheol-soo, chairman of the Presidential Transition Committee, said, "We will select officials from the Ministry of Economy and Finance to discuss when and how to provide loss compensation for small business owners and self-employed individuals in a way that does not burden the national finances and is feasible."