South Korea on Thursday proposed a record extra budget of 59.4 trillion won (US$46.1 billion) in the latest move to compensate pandemic-hit merchants for their losses caused by stricter virus curbs.
The extra budget — the first under new President Yoon Suk-yeol and the eighth during the pandemic — calls for a 36.4 trillion won spending plan, including cash handouts to small merchants, and 23 trillion won in grants to regional governments, according to the finance ministry.
“Now is the time to provide full compensation to small merchants who have endured difficulty over the past two years due to the COVID-19 pandemic,” Finance Minister Choo Kyung-ho told a press briefing.
It would mark this year’s second supplementary budget designed to cope with the fallout of the COVID-19 pandemic after the 16.9 trillion-won extra budget created in February.
Without a debt sale, the ministry plans to tap the bulk of the estimated 53.3 trillion-won excess tax revenue for this year and curtail non-essential expenditures to fund the proposed extra budget.
The government plans to submit the extra budget proposal to the opposition-controlled National Assembly on Friday for approval.
The proposed extra budget is aimed at supporting pandemic-hit merchants and antivirus efforts and stabilizing people’s livelihoods amid high inflation, the ministry said.
Of the proposed 36.4 trillion won spending, the government plans to set aside 72 percent, or 26.3 trillion won, to support small merchants hit by tougher virus restrictions.
Under the plan, 3.7 million merchants and micro business owners will receive cash handouts of at least 6 million won each. Depending on a decline in sales, they could get up to 10 million won.
Operating profits by smaller merchants are estimated to have fallen by a combined 54 trillion won between 2020 and 2021 due to tougher distancing rules.
During the election campaign, Yoon promised to spend some 50 trillion won to “fully” compensate merchants for their losses. When combined with similar, previous support of 4 million won in total, affected merchants will be able to receive up to 14 million won in compensation, the ministry said.
The government also plans to spend 6.1 trillion won to meet quarantine demand in light of a spike in COVID-19 cases in March. The money will be spent to support virus test kits and buy more COVID-19 treatment pills.
The country will spend 3.1 trillion won to help ease people’s burden of rising living costs amid runaway inflation. It plans to offer up to 1 million won in emergency funds to people in low-income brackets.
South Korea’s consumer prices grew at the fastest clip in more than 13 years in April amid surging energy costs and a rebound in demand from the pandemic. Inflation spiked 4.8 percent on-year last month, accelerating from a 4.1 percent gain in March.
Proposing the sizable extra budget is based on expectations the country will likely log hefty excess tax revenue this year, as the collection of income and corporate taxes have increased amid the economic recovery.
The tax revenue amounted to 111.1 trillion won in the first quarter, up 22.6 trillion won from the previous year.
Of the excess tax revenue, the government plans to spend 9 trillion won in repaying debt, which will help reduce the national debt and the fiscal deficit.
With the deb repayment, the national debt is expected to reach 1,067.3 trillion won this year, down 8.4 trillion won from the ministry’s earlier estimate of 1,075.7 trillion won.
The debt-to-GDP ratio is likely to fall to 49.6 percent from the estimated 50.1 percent. The managed fiscal balance, a key gauge of fiscal soundness, is expected to post a deficit of 108.8 trillion won, smaller than its earlier estimate of 110.8 trillion won.
Yoon vowed efforts to improve fiscal health, as the national debt has grown at a faster pace in recent years due to expansionary fiscal spending aimed at tackling the pandemic.
Critics said the creation of a large extra budget is feared to stoke inflation, adding the move is not in sync with the central bank’s rate hikes.
Last month, the Bank of Korea raised the policy rate by a quarter percentage point to 1.5 percent, the fourth rate hike since August last year, in a bid to tame inflation and curb household debt.
“The latest extra budget is expected to have limited impacts on macroeconomic conditions, such as interest rates and inflation, as there will be no debt sale,” Choo said.
Concerns about stagflation, a mix of slowing growth and high inflation, have increased, as elevated inflation is feared to erode private spending, hurting economic growth.
The former President Moon Jae-in administration drew up seven rounds of pandemic-related extra budgets totaling some 134 trillion won between March 2020 and February this year.
Source: Yonhap News Agency