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(LEAD) S. Korea proposes 33 tln-won extra budget to fund another COVID-19 relief aid

All News 10:35 July 01, 2021

(ATTN: TRIMS headline; UPDATES with more details in paras 6,9)
By Kim Soo-yeon

SEOUL, July 1 (Yonhap) -- South Korea proposed an extra budget of 33 trillion won (US$29.2 billion) Thursday to fund another round of COVID-19 relief aid packages for people in the bottom 80 percent income bracket and smaller merchants hit by the pandemic.

This year's second extra budget will be used to finance the 36 trillion-won virus relief packages, the fifth of its kind, designed to support the self-employed and vulnerable people hit hard by the COVID-19 pandemic, according to the Ministry of Economy and Finance.

The move came four months after the country created the 14.9 trillion-won extra budget in March to provide targeted support for the pandemic-stricken people.

Without a debt sale, the ministry plans to tap part of the 31.5 trillion-won excess tax revenue to create the supplementary budget.

The government plans to submit an extra budget proposal to the National Assembly on Friday for approval.

This computerized image shows the government's proposal to draw up an extra budget of 33 trillion won (US$29.2 billion) to fight the economic fallout of the pandemic. (Yonhap)

"(With the extra budget), the government seeks to strengthen its fiscal role in a bid to help bring the pandemic under control and support a full-fledged economic recovery," Finance Minister Hong Nam-ki said.

The South Korean economy has been on the recovery track on the back of brisk exports and reviving domestic demand. But recovery remains uneven across sectors, with income gaps between haves and have-nots deepening, known as K-shaped recovery.

Another batch of pandemic emergency handouts will be used to support affected sectors, promote the country's antivirus efforts, stabilize people's livelihoods and the job market, and revitalize the regional economy, according to the ministry.

Under the plan, cash handouts worth 10.4 trillion won will be provided to individuals in the bottom 80 percent income bracket. Of around 23 million households in total, about 18 million are expected to receive such benefits, according to the ministry's estimate.

This translates into giving 250,000 won per recipient. The government will also provide an additional 100,000 won per person to 2.96 million people in the low-income bracket.

The ruling Democratic Party has wanted another round of universal support to all households, but the ministry voiced opposition to the idea due to the growing national debt. In May 2020, the government doled out 14.3 trillion won in stimulus checks to all households.

The country will also use 3.9 trillion won to support smaller merchants and self-employed people who have suffered extended business slumps amid the pandemic.

A total of 1.13 million merchants and micro-business owners will be able to receive up to 9 million won in support, depending on the impact of virus curbs on business operations and declines in sales.

The government will earmark 1.1 trillion won to fund the cash-back rewards scheme for credit card spending.

The cash-back scheme is part of the government's measures to boost domestic demand in the second half. The three-month program will allow people to receive up to 300,000 won per person.

This file photo, taken on May 21, 2021, shows a sign put up at a store in Seoul's shopping district of Myeongdong about a temporary closure over the pandemic. (Yonhap)

Of the extra budget, the government plans to spend 4.4 trillion won on antivirus efforts, including purchases of COVID-19 vaccines and the vaccine rollout.

The country will also spend 2.6 trillion won on projects designed to support young adults' efforts to find jobs and houses and ways to strengthen social safety nets.

The remaining 12.6 trillion won will be used to rejuvenate the regional economy and buttress provincial governments' finances.

Meanwhile, the government will spend 2 trillion won repaying part of the national debt with a surplus in tax revenue.

Larger tax revenue is anticipated this year amid the accelerating economic recovery and a boom in the housing and stock markets.

The government raised its 2021 growth outlook for Asia's fourth-largest economy to an 11-year high of 4.2 percent from 3.2 percent. The Bank of Korea forecast economic growth of 4 percent.

With the debt repayment, the country's national debt is expected to slightly fall, according to the ministry.

The debt-to-GDP ratio will likely hit 47.2 percent, down from the 48.2 percent estimate made in March. The national debt is forecast to reach 963.9 trillion won, down from 965.9 trillion won.

The fiscal balance is expected to post a deficit of 90.1 trillion won, or equivalent to 4.4 percent of GDP.

South Korea has enough room to carry out an expansionary fiscal policy, but the growing pace of its national debt sounds the alarm.

Last year, the national debt grew by the largest-ever amount of 123.7 trillion won to a record 846.9 trillion won as the country implemented massive fiscal spending amid the pandemic.

This image, provided by Yonhap News TV, depicts the country's national debt. (Yonhap)


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