Value context and insight. lkm@koreatimes.co.kr
KDI criticizes gov't consumption-boosting emergency relief
Korea Development Institute researcher Kim Mee-roo, right, speaks during a press briefing at the Sejong Government Complex, Wednesday. Courtesy of KDI
By Lee Kyung-min
By Lee Kyung-min
Out of the first round of emergency relief money given to all Koreans, only about a third was spent, a state think tank said in a recent study, underscoring the inefficacy of the much-rushed policy that barely helped the recovery of in-person services hit hard by the COVID-19 pandemic.
The government spent 14.2 trillion won ($12.8 billion) to give out up to 1 million won per household in May last year, as part of the first emergency relief package to cope with the coronavirus outbreak.
The across-the-board relief did little to induce sales recovery in the travel and hospitality industries as well as at small- and medium-sized businesses, with concerns lingering that consumption-bolstering measures undermine the efficiency of containment efforts, the Korea Development Institute (KDI) said.
Direct income support relevant to the degree of suffering therefore is needed for workers in virus-hit industries, rather than households whose spending does not necessarily translate into consumption, it noted.
Efforts should be made to set up a system that can quickly and precisely identify and support those hit hardest, a process that can be best achieved by collecting and analyzing data on the extent of damage to each economic entity that will be in need of similar emergency assistance in the event of the pandemic being prolonged.
The KDI said household consumption began picking up in May when the emergency relief was given out, but only between 26.2 percent and 36.1 percent out of the total was spent.
“Credit card spending increased about 4 trillion won, an amount that is thought to have come directly from the relief,” study author Kim Mee-roo said during a recent briefing at the Sejong Government Complex.
Kim first of all acknowledged that monthly credit card consumption data analyses were used to infer sales made by industry and consumption by households, saying the study was conducted using the best data available, but this was limited as cash transactions were not included.
Households that received 1 million won in disaster support, Kim said, spent between 260,000 won and 360,000 won in expenditure that would not have taken place if the relief had not been given.
The “extra” spending helped the 1.5 percent increase in private consumption in the second quarter, an outstanding figure given the quarter-on-quarter contraction of 3.2 percent.
The recovery in consumption was also due in part to the slow spread of the virus during this period, but came mostly from the speedy relief.
In low-income households that received cash, almost all, or 93.7 percent, was spent on goods and services, whereas 3.8 percent was kept for savings and debt repayment (1.8 percent).
The government objective of bolstering consumption in the services industry essentially failed, as illustrated by a sales increase in durable or semi-durable goods, all while the travel industry, for example, continued to see its sales drop by more than half in the one-month period after the relief was given.
Buying of furniture soared 19.9 percent in the third week after the payments, followed by purchases of clothes and other goods that saw a combined sales jump of 11.1 percent compared to usual sales volumes.
The KDI concluded that government assistance in helping households maintain their usual income has clear limitations in helping businesses that suffered great losses including the travel and other service industries make any meaningful recovery in sales, a reason why a direct payment should be given to those suffering direct harm such as job losses or pay cuts.
“Direct income support will be more effective to help workers in the virus-hit industries, rather than helping households maintain their usual income as there was so little of the desired outcome following the spending of taxpayers' money,” the report said.
Seoul National University economist Kim So-young said the KDI recommendation has merit, a reason the government measures in the months to come should prioritize the plight of low-income earners who are becoming increasingly vulnerable.
“The infections will continue in the months to come, meaning small businesses and low-income workers will have to brace for far worse scenarios. Helping those whose concern is about survival should come before giving extra money to help people spend on things they don't really need.”
Meanwhile, the ruling Democratic Party of Korea and the government will announce measures as early as this week to assist the self-employed who will suffer more under strengthened social distancing rules beginning this week.
Included is the payment of cash-equivalent emergency relief and the expansion of tax deductions related to monthly rents.
About 3 trillion won was proposed initially, but the amount is likely to increase due to the ongoing surge of new infections that is currently topping 1,000 per day.