Value context and insight. lkm@koreatimes.co.kr
ANALYSIS Discussion on greater support for SMEs deepens fiscal woes
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By Lee Kyung-min
Assembly to seek retroactive compensation for small biz, paid vaccine leave
By Lee Kyung-min
Korea's fiscal soundness is expected to deteriorate further, following a legislative move seeking greater financial assistance for small- and medium-sized enterprises (SMEs) and across-the-board one-day paid leave for people receiving vaccinations against COVID-19.
The Ministry of Economy and Finance says trillions of won needed for each scheme will lead to a significant increase in the country's debt, already on a steep rise over the past year amid expansionary fiscal policies maintained to weather the global health crisis.
Another round of debt financing ― the government's issuing of bonds to raise money ― will hike the country's debt-to-GDP ratio to an all-time high of nearly 50 percent this year and further to 60 percent in 2024, putting Korea's long-established track record of fiscal discipline to the test.
Korea's relative success characterized by effective quarantine measures has kept its economic contraction limited compared to its global peers, but mismanagement of snowballing debt could become another crisis quickly with far-reaching consequences, experts say.
A report by the Korea Development Institute (KDI) on the economic outlook for the first half of this year said Korea's debt-to-GDP ratio rose to 44 percent in 2020, up from 37.7 percent in 2019, saying government measures are needed to curb rapid increases of the fiscal deficit.
Retroactive compensation for SMEs
The National Assembly Trade, Industry, Energy, SMEs and Startups Committee is reviewing bills to grant small businesses compensation for losses suffered due to the COVID-19 pandemic. The ruling Democratic Party of Korea is seeking to organize a hearing to be attended by experts and figures representing the SMEs.
At issue is whether to compensate them retroactively, meaning small business owners could receive full compensation for a drop in sales in the periods when the government-imposed gathering bans and reduced business hours were in effect. In this case, the business owners will have to return the previously given cash assistance of up to 3 million won ($2,600). At least 2 trillion won and up to 8 trillion won will be needed for this, with criteria remaining uncertain over what period of time should be recognized and which businesses should be included.
The discussion first emerged in January but was stalled the following month, as the country's top policymakers showed differences of opinions over the rising government debt and the need to help those hit by the pandemic. The discord was settled after President Moon Jae-in said in late February that the government should consider legislating the measure, practically giving the order from the top to follow the directive.
Seoul National University professor Kim So-young said the measure is needed, since the suffering of many small business owners resulted directly from three rounds of social distancing rules.
“The key is how best to measure the economic damage accurately, which seems quite plausible given their sales figures will speak volumes,” he said.
The clearly targeted measure in his view is preferable to giving financial assistance to the country's entire population, since the emergency relief might be shared with to business owners whose financial status had already been shaky long before the pandemic.
“Taxpayers' money should be spent to help those who really suffered. The government needs to dramatically revise spending plans to remove redundant state-run projects.”
Paid vaccine leave
At least 2.5 trillion won will be needed to finance a bill that allows 70,000 won in pay each for the country's over 1.82 million salaried employees after receiving vaccinations. The bill passed the National Assembly Health and Welfare Committee, April 27.
The spending will soar to 6.2 trillion won, if the assistance is expanded to the country's entire population. The figure will jump further to 9.2 trillion won if an additional half-day leave is recognized.
The ministry said in a written opinion to the committee that vaccine-related spending will spike uncontrollably, given the uncertainty over the number of vaccines to be administered and the possibility of virus mutation.
Of 87 countries where Korean mission officials are dispatched, the ministry added, only seven have implemented vaccine leave without the government shouldering the cost for the leave.