The ruling Democratic Party of Korea said it will push forward with its plan to provide disaster relief funds to all households before the Chuseok holiday. Rep. Park Wan-joo, chairman of the ruling party’s policy committee, said on Tuesday that the disaster relief funds for the entire population need to be covered by a second supplementary budget of up to 35 trillion won. Attending the National Assembly’s Strategy and Finance Committee on Wednesday, Deputy Prime Minister Hong Nam-ki said he is not considering giving out relief funds to all households, but added that he is discussing ways with the ruling party to provide the relief funds to a broader range of recipients. Deputy Prime Minister Hong said the supplementary budget would be slightly over 30 trillion won, the amount the ruling party has proposed. The government seems to have left open an option to provide relief handouts to the entire population.
If provided, this would be a fifth round of disaster relief funds since the outbreak of the COVID-19 pandemic. The effectiveness of the previous payouts has been controversial and it is questionable if providing a universal handout is appropriate at a time when the economy is recovering. Backed by the recovery of the global economy, the Bank of Korea raised its growth forecast for this year from 3 percent to 4 percent at the beginning of the year. A hike in the interest rate is imminent as concerns about inflation continue to rise. In its 2021 financial stability report, the central bank warned that the risk of asset prices, such as properties and shares, was at a level just before the financial crisis, meaning there are bubbles in those sectors. Now is not the time to release cash but to control spending and manage debts.
The government says there are enough resources to cover the relief funds as it earned additional 33 trillion won in tax in the first quarter of the year, but most of the additional tax revenue was from a temporary boom in the real estate and stock markets. The National Finance Act stipulates that the excess in tax revenues be used to pay off debts. The government has to pay about 20 trillion won in interest on government bonds this year but only 2 trillion won of the supplementary budget will be used to pay off debts. This is not even a way to run a household.
The economy is on a path to recovery this year but there are growing concerns over polarization. As the crisis in the service sector continues, the most vulnerable groups are relying on public temporary jobs. According to the Korea Economic Research Institute, the financial condition of companies deteriorated last year, except for the top 20 percent in sales. Some companies thrived during the pandemic while others are on the verge of going out of business. Giving disaster relief payouts to the well-off when there are so many people suffering financially will only fuel polarization. It is also questionable if giving hundreds of thousands of won to the rich will help boost consumption.
The government should use additional tax revenues to pay off debts. We cannot afford to let the youth bear the burden of debt when they are already suffering from high unemployment rate. There is no way to explain a universal handout other than a measure aimed at pandering to the public prior to the presidential election.