Seoul: The Korean government has given the green light to a supplementary budget of 30.5 trillion won (US$22.15 billion) on June 19, aiming to stimulate the economy and alleviate the cost-of-living burden. This is the first extra budget under the Lee Jae Myung administration and the second supplementary budget of the year, encompassing 20.2 trillion won in increased spending and 10.3 trillion won in adjusted revenue projections due to reduced tax collection. When combined with the 13.8 trillion won first supplementary budget announced in May, it is being dubbed a "super budget."

According to Yonhap News Agency, the centerpiece of this second budget is a universal "household recovery voucher" program. Every Korean citizen will receive 150,000 won, with additional support directed towards lower-income groups and residents in depopulated areas. The package also includes a debt relief program for small business owners and the self-employed, offering reductions or rescheduling for debts under 50 million won that have been delinquent for over seven years, based on the borrower's ability to pay.

Lee Jae Myung defended the budget, emphasizing the need for government intervention due to the economic slump. He stated, "This is the time to use national finances," given the projected near-zero growth and sluggish domestic demand. However, concerns linger about the efficacy of cash handouts compared to public investment in stimulating economic growth. Doubts persist about whether the 13.2 trillion won allocated for direct support will act as a growth catalyst, especially since it provides the same amount to all citizens, including high-income earners.

There are also inflationary risks associated with injecting large sums of cash into the market, potentially driving up consumer prices and increasing volatility in the real estate sector. Public debt is on the rise, with national debt reaching 1.28 quadrillion won following the first supplementary budget. With the second budget partly financed through 19.8 trillion won in new bond issuance, the debt is expected to surpass 1.300 quadrillion won. Additionally, tax revenue shortfalls totaling 87 trillion won over the past two years exacerbate these concerns.

The debt relief initiative for individuals raises fairness issues. It's crucial to manage the 47 trillion won in maturing pandemic-era loans this September, but repeated write-offs could lead to moral hazard and frustrate responsible borrowers.

Korea's economy faces long-term structural challenges, such as low birthrates and an aging population. While one-time cash distributions may alleviate short-term difficulties, they cannot replace the need for deeper reforms. To ensure the supplementary budget contributes to lasting growth, structural reforms to improve economic fundamentals are necessary. Safeguarding fiscal integrity and reassessing tax cuts will also be crucial to prevent the budget from becoming a populist measure.