'Priming domestic demand' vs. 'short-term fix': Cash aid plan draws mixed reactions

Vendors and customers are seen at a traditional market in Mapo District, Seoul, Tuesday. Yonhap

Reaction among small business owners is sharply divided over the government's plan to offer up to 600,000 won ($397) in cash assistance to people in the bottom 70 percent income bracket, according to market watchers Wednesday.

The government aims to support households and revitalize local economies strained by the ripple effects of the Middle East conflict, with supporters viewing the measure as a potential boost for an economic rebound.

Critics, however, argue the move risks being a temporary measure that could add to inflationary pressure.

The Ministry of Planning and Budget said the proposal is part of a 26.2 trillion won supplementary budget to cushion households and businesses from rising energy and logistics costs amid the prolonged conflict.

The cash assistance program targets about 35.8 million people and allocates about 4.8 trillion won.

Under the plan, all eligible recipients will receive a base payment of 100,000 won, with additional amounts determined by income level and place of residence. Those in lower-income brackets outside the Seoul metropolitan area could receive up to 600,000 won in total.

Payments will be provided through credit cards, debit cards or local currency vouchers, with usage rules aligned with last year’s consumer voucher program to encourage spending within local communities.

The Korea Federation of Micro Enterprise voiced support for the plan. "The broader use of local currency could direct spending toward small merchants and help stimulate business activity," it said.

Similar views were echoed in online forums for the self-employed. One user wrote, "The payments could lead to higher consumption and improved sales."

Others, however, remained cautious. Another user said any boost in sales would likely be short-lived.

"Rising labor and material costs could offset gains, limiting the overall benefit and potentially fueling inflation," he wrote.

Some critics also raised concerns that spending may be concentrated in sectors such as private education and health care, weakening the overall impact. They said last year’s consumer vouchers failed to deliver lasting gains and called for a design that ensures funds are spent in areas more directly linked to small business revenue, including dining.

Budget Minister Park Hong-geun, meanwhile, dismissed concerns about inflation.

Speaking on KBS News on Tuesday, he said the Bank of Korea and the Korea Development Institute expect the impact on prices to be limited.

“The supplementary budget will have minimal influence on interest rates or inflation as it does not involve government bond issuance,” he said.