Uncertainty of extra budget grows amid conflicting views on emergency handouts

July 14, 2021

 The fate of the extra state budget currently under review at the National Assembly is growing more and more uncertain amid a widening political rift among rival parties and the government over the direction and scope of COVID-19 relief handouts.

In late June, the government proposed an extra budget of 33 trillion won (US$28.9 billion) in an agreement with the ruling Democratic Party (DP) to finance the fifth round of COVID-19 aid packages. The handouts were set to be given to people in the bottom 80 percent income bracket and small merchants hit hard by the pandemic.

On Tuesday, however, the DP leadership decided to renege on its agreement and push to offer handouts to all nationals regardless of their income levels, citing the vagueness of the recipient sorting criteria of the 80 percent plan and complaints raised questioning its fairness.

The party also decided to increase earmarks toward supporting the self-employed and small businesses in light of the government’s toughening of social distancing guidelines following a recent flare-up of new virus cases.

To this end, the DP is eyeing to increase the extra budget by an additional 4 trillion won to 4.5 trillion won, when taking into account the government’s plan to redeem state bonds. The party is also reportedly leaning toward scrapping a planned credit card cash-back reward scheme worth 1.1 trillion won in order to facilitate a universal virus relief program.

Noryangjin Fisheries Wholesale Market in Seoul is quiet on July 13, 2021, the second day of the implementation of the toughest social distancing measures in the greater Seoul area amid the fourth wave of COVID-19. (Yonhap)
Finance Minister Hong Nam-ki (2nd from L) responds to lawmakers' questions during a meeting of the special committee on budget and accounts at the National Assembly in Seoul on July 14, 2021. (Yonhap)
Rep. Song Young-gil (L), head of the ruling Democratic Party, and Lee Jun-seok, chairman of the main opposition People Power Party, shake hands after holding a meeting at a restaurant in Seoul on July 12, 2021. (Yonhap)

Noryangjin Fisheries Wholesale Market in Seoul is quiet on July 13, 2021, the second day of the implementation of the toughest social distancing measures in the greater Seoul area amid the fourth wave of COVID-19. (Yonhap)

By reallocating funds for the credit card reward scheme toward universal virus handouts, the DP argues it could provide all nationals with around 220,000 won in relief support.

“Considering the economic downturn likely to be incurred by the worsening virus situation, universal relief handouts are needed in order to prop up domestic spending,” DP spokesperson Rep. Koh Yong-jin said, adding the party plans to consult closely with the government on the matter.

Top financial officials have taken issue with the DP’s reversal on its agreement with the government. Finance Minister Hong Nam-ki told members of parliament’s finance committee Tuesday that he doesn’t agree with the idea of pursuing a universal handout program.

“As people in the top 20 percent income bracket have seen almost no reduction in their earnings, we should be cautious of reducing the size of support toward those in the lower income bracket and distributing it to the highest income quintile,” Hong said.

Hong also said he sees the credit card cash-back scheme as “necessary,” in response to a lawmaker’s suggestion of cutting back on its proposed budget of 1.1 trillion won. Hong also stated the importance of redeeming state bonds as planned, underscoring its impact on South Korea’s credit rating.

The finance minister has been long opposed to providing universal support to all people, citing the country’s growing national debt. Whether the DP can follow through with its new proposal will likely depend on whether the party can persuade Hong to sign off on the universal relief scheme.

Hong on Wednesday again reiterated his preference for the 80 percent plan, promising lawmakers that the government will “execute the budget proposal as smoothly as possible” if the National Assembly decides to move forward with the initially agreed-upon emergency relief scheme.

Prime Minister Kim Boo-kyum also reacted negatively to the DP’s new proposal, saying that the government was “in a difficult position to borrow money” to increase the size of the extra budget.

DP Rep. Kim Yong-min said in a radio interview: “There are now voices among the DP questioning whether the party should recommend the dismissal (of Hong). … The party plans to start a persuasion campaign with related data.”

The ruling party’s deadlock over the extra budget remains not only between it and the government but also with the main opposition People Power Party (PPP).

In a radio interview Tuesday, PPP Chairman Lee Jun-seok made clear that the main opposition insists on a targeted virus relief program centered around support toward struggling small business and the economically underprivileged people.

Lee made the statement following a strong backlash over a blundered announcement on his one-on-one meeting with DP Chairman Song Young-gil on Monday.

The parties’ spokespeople announced Monday that Lee and Song reached a surprise consensus to give the handouts to the entire nation as part of the upcoming round of the COVID-19 response extra budget. In less than two hours, however, the PPP backtracked on the announcement, saying it only left open the possibility of universal relief payments.

Rep. Kim Do-eup, head of the PPP’s policy committee, also said the provision of targeted relief payments to small businesses that have suffered real damage will be considered with top priority during parliament’s extra budget review.