Supplementary Budget Includes Childcare Coupons... Can It Overcome Opposition's "No Handouts" Backlash?

COVID-19 Supplementary Budget Projected at 6.2 Trillion KRW+
Opposition Parties Oppose Budget Allocation Except for Urgent Measures Like Quarantine and Small Business Support
Passage of Tax Law Amendments for Comprehensive Economic Measures Uncertain
Possible Two Supplementary Budgets Due to Tax Revenue Shortfall

[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Kwangho Lee, Hyunjung Kim, Sehee Jang] On the 2nd, the ruling party and the government reached additional agreements on issuing child coupons and allocating separate budgets for Daegu and Gyeongbuk during the supplementary budget deliberations for the novel coronavirus disease (COVID-19) response. As a result, the COVID-19 supplementary budget is likely to exceed the initially expected "over 6.2 trillion won." Some forecasts suggest it could reach as high as 7 to 8 trillion won (based on expenditures). However, the opposition party maintains that, ahead of the general election, only urgent budgets such as those for quarantine and small business support should be included, and that populist budgets should not be part of it. Therefore, difficulties are expected in passing the related legislative amendments through the National Assembly.

◆ From child-rearing coupons to separate budgets for Daegu and Gyeongbuk = On this day, the ruling party and government additionally agreed to provide child-rearing coupons to 2.36 million parents with children, beyond the existing measures. If implemented as is, a budget of 236 billion won per month would be required just to provide 100,000 won worth of coupons per household. Furthermore, for the heavily affected Daegu and Gyeongbuk regions, separate budgets will be allocated for ▲ building medical infrastructure ▲ providing emergency funds to affected small and medium enterprises and small business owners ▲ and regional economic recovery. Previously, the government announced that the supplementary budget would focus on ▲ supporting recovery of small and medium enterprises and small business owners ▲ enhancing the quarantine system ▲ and economic reinforcement (domestic demand and regional economy). This is seen as necessary not only for economic reinforcement but also from a welfare perspective.

The opposition party has consistently held the position since the early discussions on the supplementary budget that populist budgets should not be included beyond urgent support such as quarantine budgets and small business support. There is also concern that such generous budgets could influence the results of next month's general election.

The United Future Party also checked the government's populist supplementary budget on this day. Cho Kyung-tae, Supreme Council Member of the United Future Party, said, "The supplementary budget should be 100% related to COVID-19," adding, "Even if masks and hand sanitizers are provided to all citizens, it would not exceed 1.3 trillion won. Masks should be distributed to the public, and negative pressure rooms should be temporarily expanded quickly to make the best efforts." Kim Kwang-rim, also a Supreme Council Member of the same party, emphasized, "Measures need to be executed flexibly through grants and comprehensive subsidies rather than specifying particular regions, projects, or markets for recovery and restoration from COVID-19 damage."

◆ Tax law amendments also a hurdle = Tax law amendments for implementing comprehensive economic measures are another hurdle. In particular, tax credits for benevolent landlords, doubling the income deduction rate for check and credit card usage from March to June, and a 70% reduction in the individual consumption tax on automobiles require legal amendments to be implemented.

The related legislative amendment is planned to be introduced as the "Tax Special Cases Act Amendment" by Kim Jung-woo, a member of the National Assembly from the Democratic Party and the ranking member of the Planning and Finance Committee. Kim, who has begun organizing the bill's provisions, explained, "Since raising the limit on deductible entertainment expenses for companies and tax credits for landlords can only be implemented after the law passes, we plan to submit it as soon as possible," adding, "We intend to propose the Tax Special Cases Act amendment early this week."

There are concerns that due to tax revenue shortfalls, two supplementary budgets may need to be prepared this year. The only times two supplementary budgets were prepared were in 1998 and 1999 (during the foreign exchange crisis), 2001, and 2003, totaling three occasions. A Ministry of Economy and Finance official said, "If revenue decreases, the options are to prepare a supplementary budget or reduce unused projects. However, reducing ongoing projects is realistically difficult because it requires comprehensive consideration of the economic impact and other factors."

Concerns about fiscal soundness are also rising due to the issuance of deficit government bonds for the supplementary budget. The managed fiscal deficit ratio is expected to worsen to the highest level since 1998. Based on the 2020 budget passed by the National Assembly last year, the managed fiscal balance deficit is 71.5 trillion won, which amounts to 3.6% of this year's projected nominal GDP. Adding the government's minimum proposed supplementary budget of 6.2 trillion won increases the managed fiscal balance deficit ratio to 3.9% of GDP. Including revised revenue estimates could push the deficit ratio beyond 4.0%. Furthermore, according to the national fiscal management plan for 2019?2023, the national debt ratio is expected to reach 46.4% by 2023.

There are also forecasts that tax revenue shortfalls will be recorded for two consecutive years. Last year, national tax revenue was 293.5 trillion won, 1.3 trillion won less than the government's target. This is 116.1 billion won less than the previous year. Corporate tax revenue is also expected to decline due to poor corporate performance.

This content was produced with the assistance of AI translation services.