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| gettyimagesbank |
Fiscal soundness concerns deepen due to lack of financing plan
By Lee Kyung-min
A legislative move to set up the legal groundwork to protect small- and medium-sized enterprises hit by the COVID-19 pandemic is becoming politicized ahead of April mayoral by-elections, with the issue emerging as a major source of discord among top policymakers.
Presidential hopefuls as well as many other politicians are arguing for the highly populist policy in an apparent vote-seeking attempt, whereas the issue has become more of a short-lived power struggle defined by the prime minister overpowering the finance and vice finance ministers.
Experts say clearly targeted support for those companies that have experienced a drop in sales would be far better than across-the-board financial assistance, adding the expected budget shortfall can be filled by drastically removing spending plans allocated for repetitive, ineffective state-run projects.
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| Prime Minister Chung Sye-kyun Yonhap |
The move gained momentum quickly after Prime Minister Chung Sye-kyun publicly ordered the Ministry of Economy and Finance to draw up measures to legislate compensation for many small business owners during a Jan. 21 ministerial-level meeting.
The much-rushed drive was in response to implicit opposition from First Vice Minister of Economy and Finance Kim Yong-beom who expressed caution against the plan, which he essentially described as inappropriate and lacking foresight given snowballing debt brought on by four extra budgets drafted to fight the pandemic.
In a Jan. 22 radio interview, Kim said what Korea seeks to legislate has no precedent to look to, saying state support is set up prompted by needs, not by principles set in law.
"We will review related ongoing discussions and overseas cases, but it is not easy to find examples in other countries," Kim said. "As I understand it, the government and lawmakers draw up emergency packages in a coordinated, timely fashion to best allocate state resources to help those most in need."
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| First Vice Minister of Economy and Finance Kim Yong-beom Yonhap |
The discord was abruptly settled, Jan.25, after President Moon Jae-in said the government should consider legislating the measure, practically giving am order from the top to follow the directive.
Seoul National University 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 accurately measure the economic damage, which seems quite plausible given their sales figures will speak volumes," he said.
The clearly targeted measure in his view is much better than giving financial assistance to the country's entire population, given the emergency relief might have been given to business owners whose financial status had been shaky long before the pandemic.
"The administrative costs notwithstanding, 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."
The criticism came as greater spending requires either a tax hike or an increase in debt-financing ― by issuing government bonds ― both of which will inevitably raise fiscal soundness concerns.
The government issued 104 trillion won in debt in 2020. The figure is expected to surpass 93.5 trillion won this year and 100 trillion in 2022. The government debt-to-GDP ratio is expected to exceed 50 percent in 2022, up from 47.3 percent this year. This is a further jump from 43.9 percent in 2020.
