The Moon Jae-in administration and the ruling Democratic Party of Korea (DPK) have started the legislative process to allow small businesses and the self-employed to get state compensation for their losses arising from COVID-19. The move has gained momentum since Prime Minister Chung Sye-kyun instructed the Ministry of Economy and Finance, Thursday, to work out measures to help those hit hard by the pandemic.
The legislation initiative is a step in the right direction. It is the government's duty to cover the damages caused by state-imposed bans and restrictions on the operation of cafes, restaurants, bars, gyms and other crowded places. The government has so far provided two rounds of emergency relief funds to individuals and businesses. However, such one-time funding events are insufficient to solve the problem. That's why the country needs to lay the legal groundwork for compensation.
The move comes amid mounting calls for damage compensation from small business operators and the self-employed. More than 300 cafe owners recently filed a suit against the government, seeking 1.8 billion won ($1.6 billion) in compensation for losses caused by business restrictions under toughened social distancing rules. Gym operator have also launched a similar legal battle.
Few would oppose the legislative push, given the devastating economic fallout from the unprecedented public health crisis. Some lawmakers of the governing DPK have already presented similar bills aimed at easing the pains of those most vulnerable to the resurgent pandemic. Even the conservative opposition People Power Party (PPP) has acknowledged the need for the compensation legislation.
In the run-up to mayoral by-elections set for April in Seoul and Busan ― the country's two largest cities ― both the ruling and opposition parties could invite criticism for pushing for such a compensation bill in a seemingly populist bid to woo voters. Some conservative media outlets are denouncing the Moon government and political parties' move as “vote buying.” Yet it is wrong to view the legislation process only from a negative point of populism. One of the most urgent tasks is to help the hardest-hit businesses and individuals cope with the crisis.
Now the big question is how to finance compensation payments after the bill becomes law. Finance Minister Hong Nam-ki first reacted negatively to Prime Minister Chung's legislation drive, saying that government finance is not like a “widow's cruse.” Soon after he changed his position to accommodate Chung's proposal. But for his part, Hong should consider fiscal means before setting out measures to cover the pandemic-triggered losses for small businesses.
For this reason, the finance ministry should prepare detailed and viable steps to raise funds needed for compensation payouts. Otherwise, the government will face a snowballing budget deficit. An estimate calls for as much as 100 trillion won ($90 billion) for four months to help the needy. The situation could deteriorate further. The DPK is trying to legislate a corporate profit sharing act designed to offer administrative, financial and tax benefits to large corporations in return for their voluntary profit-sharing with subcontractors. Policymakers should not sacrifice long-term fiscal health to avoid a more serious crisis than the virus.