ANALYSIS Talk of another round of disaster relief payouts sparks concerns

Finance Minister Hong Nam-ki speaks after the National Assembly passes a supplementary budget bill for a coronavirus relief fund in Seoul, March 25. Yonhap p

By Lee Min-hyung

A debate is heating up among politicians on whether to provide another round of disaster relief payouts to all households in the country, amid lingering concerns that the move will end up worsening the soaring national debt burden.

The government and the ruling party have brought up the idea of offering a fifth round of COVID-19 relief payouts, citing the need to revitalize the sagging real economy.

But some economists view the move as “unnecessary” amid clear signs of an economic recovery for the rest of 2021. The central bank recently revised up Korea's 2021 GDP growth forecast to 4 percent on strong signs of an exports rebound and smooth progress in vaccinations. The prediction, if realized, is a noteworthy rebound given that the economy contracted 1 percent in 2020 in the aftermath of the pandemic-induced social distancing and global economic doldrums.

Even if the economy may be on track for a solid rebound, setting up another expansionary budget for the fund is undesirable, as this will further worsen the sovereign debt level, they said. They argued that selective support for some groups that are highly vulnerable to the virus would be more effective at this period of economic rebound.

The Ministry of Economy and Finance remains mum over the debate, as it had been last year. Early this year, the ministry bristled against the ruling party's demand to provide a universal coronavirus stimulus fund by putting together a supplementary budget.

The finance ministry reiterated its position this time, saying that it is “not considering any plans for a fifth relief fund.” But there is a chance the ministry could come to terms with the ruling party and the government over possibly provide selective financial support for the virus-hit self-employed.

The government budgeted 14.3 trillion won to finance disaster relief payouts for the public in May 2020 when the virus panic started engulfing the local economy. But calls have since grown pointing out that universal financial aid is less effective than selective support, as the level of shock suffered by vulnerable groups ― such as small business owners and the self-employed ― is much more serious than the impact felt by wage earners.

Regardless of the type of relief, the nation's worsening fiscal status is also another major concern. Korea's government liabilities reached an all-time high of around 2,000 trillion won last year as a result of a series of anti-coronavirus pump-priming measures.

The historic rise of the national debt was largely attributable to the government's execution of supplementary budgets in 2020 to finance the relief payouts.

“Universal relief payouts are undesirable, as the economy remains vulnerable to inflationary risks,” Yonsei University economist Sung Tae-yoon said.

The argument from the ruling camp is untimely as the Bank of Korea is considering a possible interest rate hike, according to Sung.

“Even if the government hopes to achieve faster economic recovery, selective relief payouts appear to be a better option under the current economic circumstances here,” he said.

Korea Capital Market Institute macroeconomist Kang Hyun-ju also argued that the government does not have to push for a universal aid package, as it is already aware of which social groups are in urgent need of financial support.

“The government is clearly aware of which groups are most vulnerable to the pandemic by collecting tax-related data throughout last year when the shock reached its peak,” he said. “It is ineffective for the government to provide financial aid to the whole public at this time of economic recovery.”

Opposition politicians are stepping up criticisms of the ruling party's move for the populist idea ahead of the 2022 presidential election. The main opposition People Power Party argued that the ruling party and the government should rethink the idea of offering universal aid and spend the budget to help 5 million self-employed people survive the aftershocks of the pandemic.