S. Korea proposes 14 tln-won extra budget to support pandemic-hit merchants
SEOUL, South Korea proposed an additional extra budget of 14 trillion won (US$11.8 billion) Friday to support small merchants hit hard by the COVID-19 pandemic amid extended virus curbs.
This year’s first extra budget will be financed with a bond sale worth 11.3 trillion won, according to the finance ministry. It marked the seventh round of supplementary budgets aimed at coping with the fallout of the pandemic.
The government plans to submit the extra budget proposal to the National Assembly on Monday for approval.
The ruling Democratic Party ramped up the call for creating another extra budget to aid affected merchants despite criticism for vote-buying cash handouts ahead of the March presidential election.
The size of the extra budget could increase during a parliamentary review as the ruling and main opposition parties voiced the need for bigger support.
Finance Minister Hong Nam-ki said the ministry decided on the budget size by taking into account its overall impact on the economy, such as inflation and the bond market.
“We expect the National Assembly to respect the government’s proposal as much as possible,” Hong told a press briefing.
The ruling party commands a parliamentary majority with 169 seats in the 295-member parliament, while the main opposition People Power Party has 106 seats.
Of the proposed budget, 11.5 trillion won will be set aside to support merchants and micro businesses hit by extended antivirus measures caused by the protracted pandemic.
The government plans to spend 9.6 trillion won to additionally provide 3 million won each to 3.2 million merchants in a bid to ease the burden of paying rent and other costs. The amount was raised from the 1 million won in similar support in December.
The country will also use 1.9 trillion won to shore up the state scheme to compensate merchants for their losses caused by state orders to shut down or suspend business over COVID-19. The move will raise the related budget to 5.1 trillion won from the current 3.2 trillion won.
To contain the upsurge in virus cases, health authorities imposed tighter antivirus measures, including a four-person cap on private gatherings and a 9 p.m. business hour curfew on cafes and restaurants, from Dec. 18 through Sunday.
The government partially eased virus curbs Monday by raising the private gathering limit to six while keeping the curfew until Feb. 6. The number of virus cases stayed in the 6,000s after it soared to near 8,000 in late December.
Of the extra budget, the country plans to spend 1.5 trillion won to increase hospital beds for critically ill virus patients and buy COVID-19 treatment pills and shots. The remaining 1 trillion won will be set aside as reserve funds to brace for quarantine demand amid the spread of the omicron variant.
The extra budget proposal came as the country logged an additional amount of excess tax revenue in 2021 amid rises in asset prices and the economic recovery.
The government is estimated to have posted an additional 10 trillion won in excess tax revenue last year on top of the previously created 50.6 trillion won in such surplus.
The proposed supplementary budget will be first financed with the debt sale as excess tax revenue can be used only after the government settles last year’s state accounts in April.
Finance Minister Hong earlier opposed drawing up an extra budget in January, saying the government’s priority is to implement a record high national budget of 607.7 trillion won for 2022.
Critics said the government’s move to create an extra budget is not in sync with the central bank’s monetary tightening, saying that it could put upward pressure on rising inflation.
“The extra budget is expected to have limited impact on inflation as support will be provided to affected merchants in the form of transfer payments,” Hong said.
“But if the size of the budget increases, we cannot help having concerns about its impact on inflation,” he added.
Last week, the Bank of Korea (BOK) raised the benchmark interest rate by a quarter percentage point to 1.25 percent, marking the third pandemic-era hike since August and November last year. The central bank hinted at more rate hikes in the coming months to tame inflation.
South Korea’s consumer prices grew 2.5 percent last year from a year earlier, the fastest pace in 10 years, due to surging energy costs and high prices of farm products. The BOK put its 2022 inflation outlook at 2 percent.
With the extra budget, the national debt is forecast to reach 1,075.7 trillion won this year, up from the previous estimate of 1,064.4 trillion won, according to the ministry. The sovereign debt will exceed the 1,000 trillion-won mark for the first time this year.
The debt-to-GDP ratio is also expected to rise to a record high of 50.1 percent from 50 percent. The fiscal deficit is forecast to reach 68.1 trillion won this year.
South Korea has enough room to carry out an expansionary fiscal policy, but economic policymakers sounded the alarm over the growth pace of the debt.
Political uncertainty in an election year will also add risks to the implementation of the economic policy.
The successor to President Moon Jae-in may want to draw up another extra budget to carry out the election pledges after the March 9 election.
South Korea drew up two supplementary budgets totaling some 50 trillion won last year to provide tailored support to small merchants and cash handouts to people in the bottom 88 percent income bracket.
In 2020, the country drew up four extra budgets totaling around 67 trillion won to cope with the COVID-19 pandemic. In May that year, the government doled out 14.3 trillion won in stimulus checks to all households.
Source: Yonhap News Agency