New Korean govt seeks record $47 bn extra budget despite inflationary pressure

2022.05.13 10:24:06 | 2022.05.13 10:24:35

[Photo by Lee Seung-hwan]이미지 확대

[Photo by Lee Seung-hwan]

The new South Korean government has proposed a record supplementary budget of nearly 60 trillion won ($46.5 billion), nearly doubled from earlier outline and including 25 trillion won cash handout that could fan already-strong inflation.

The first cabinet meeting under President Yoon Suk-yeol freshly in office on Thursday in Yongsan, Seoul, approved the largest-ever supplementary package of 59.4 trillion won in this year’s second addition to the supersized spending plan for this year.

The amount includes 36.4 trillion won spending for small merchants and 23 trillion won share for regional governments from surplus tax revenue.

As much as 25 trillion won would be doled out to fully compensate self-employed and merchants for the losses from business restrictions to contain virus spread over the last two years and subsidize their livelihood and payroll retention.

The government proposed to hand out from 6 million 10 million won to each 3.7 million merchants and small businesses according to their business losses and scale.

The government plans to fully cover losses for individual businesses in travel, air transportation, performance and exhibition, sports facility operation, and wedding hall management whose revenue has plunged by more than 40 percent.

“The government will be providing what had been promised by offering minimum 10 million won to maximum 14 million won when adding 4 million won in first and second quarantine subsidies,” said Choo Kyung-ho, acting prime minister and deputy prime minister for economy.

The government will also provide up to 1 million won in emergency funds to 2.27 million low-income households to ease burden from high inflation. About 700,000 freelancers will also receive 1 million won in emergency funds and 161,000 corporate taxi drivers and chartered bus drivers will receive 2 million won in income stabilization fund.’’

“It is essential to helps self-employed and merchants back on their feet for the long-term economic prospects,” Yoon said as the record spending plans goes against the People Power Party (PPP)’s criticism against fiscal profligacy under the former government and can aggravate runaway inflation.

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The government on Friday has put the supplementary budget outline to the National Assembly dominated by the Democratic Party (DP), who could agree to stimuli given the importance of the upcoming June 1 local elections after losing the presidential election.

But the size could change during legislative review due to the potential impact on inflation that has been fastening monetary tightening.

Cash handout doubled from 2020 levels that amounts to 1.2 percent of last year’s gross domestic product of 2,057 trillion won could go to waste without helping productivity.

“The extra budget is expected to give upward pressure on prices by 0.1 percentage point to 0.3 percentage point,” observed Joo Won, director of economic research at Hyundai Research Institute.

According to the Bank of Korea, consumers’ expected inflation for the following year reached 3.1 percent, the highest in 9 years and the inflation rate in April at 4.8 percent. Due to the contradicting fiscal policy to its monetary tightening campaign, the BOK may have to hasten or broaden rate increases to contain prices.

The government vowed not to increase debt issues, but advancing spending from reserves for next year for debt refinancing would eventually add to the outstanding debt balance.

According to the Ministry of Economy and Finance, the excess tax revenue of 53.2 trillion won this year comes on corporate tax. The ministry raised its estimated revenue from corporate tax from 74.9 trillion won to 104.1 trillion won. Transfer income tax also was up 11.8 trillion won to 34.2 trillion won and earned income tax 10.3 trillion won to 58 trillion won.

By Kim Jung-hwan, Chun Gyung-woon, Lee Jong-hyuk, and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]