[NEWS IN FOCUS] Haggling begins over how to help

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[NEWS IN FOCUS] Haggling begins over how to help

Support measures are being proposed to help people in dire economic straits as a result of the coronavirus outbreak, and the measures are being hotly debated, with their effectiveness and cost questioned.

On Tuesday, the Jeonju government submitted a proposal to the local assembly for distributing basic income to families affected by the outbreak.

The Jeonju government will directly hand out 500,000 won ($414) to 50,000 residents suffering economic difficulties, including day laborers, contract workers and those who have lost their jobs.

Total spending will be roughly 25 billion won. Additionally the government will provide 14 billion won for owners of small businesses, such as restaurants.

Jeonju isn’t the only local government considering allowances. Other local governments, including the Seoul city administration, are mulling over the idea.

The South Gyeongsang government even suggested a 1 million won monthly allowance to every Korean.

Kwon Young-jin, mayor of hard-hit Daegu, on Wednesday said he welcomes the disaster allowances.

He said the Daegu and North Gyeongsang economies have been heavily affected, and he requested the central government’s immediate support of the incomes of vulnerable people.

The local government believes that the allowances would not only support the people affected but would contribute to the economy by encouraging spending.

The idea was first proposed by Lee Jae-woong, CEO of Socar, the parent company of Tada.

In late February, Lee petitioned the Blue House for a 500,000-won-per-person disaster allowance, citing the economic impact on the economy, which is facing its biggest challenge in more than a decade.

He argued that the economic crisis from Covid-19 was becoming serious, threatening jobs, incomes and even the survival of some.

“Small business owners, freelancers, contract workers, students and the 10 million unemployed who are standing on the edge are in need of income to pay their rent, take care of their children and even buy ramen,” Lee said.

Lee said a 500,000 won allowance to 10 million people as a disaster allowance would cost the government 5 trillion won. And if the number of people receiving the allowance increases to 20 million, it would cost the government 10 trillion won.

He said the supplementary budget proposed by the government is not enough for the people to actually feel its impact and that a policy that would support the income of people who are barely hanging on is desperately needed.

“If the government prepares 20 trillion won, 10 trillion won will be used effectively,” Lee said. “It would be a budget that saves lives.”

The government is not too thrilled about the idea.

During a hearing at the National Assembly on Wednesday, Finance Minister Hong Nam-ki said the disaster allowance is a difficult “option” in terms of the government’s fiscal position.

“Although there would be an effect, there’s a problem on financial resources and fiscal soundness,” Hong told lawmakers. “We would need 25 trillion won to give 500,000 won to each and every person in the country and 51 trillion won if the allowance is 1 million won.”

A 51 trillion won budget for a basic allowance would be equal to 10 percent of the 512.3 trillion won in the total government budget this year.

This is a huge burden on the government considering that 10.3 trillion won, or 88 percent, of the supplementary budget will be funded through government bonds.

When including the supplementary budget, Korea’s debt-to-GDP ratio is expected to rise above 40 percent.

As the government bond issuing is expected to total 70.5 trillion won including the supplementary budget, Korean government debt is expected to reach an all-time record of 815.5 trillion won this year.

The increase in spending is already a huge burden as government tax revenues are under pressure and will become more so as businesses face coronavirus-related weaknesses.

Hong added that the issue needs a social consensus such as whether an allowance granted to high-income households would be appropriate.

The finance minister emphasized that the recently drawn up supplementary budget includes the 2.4 trillion won of spending on gift coupons that could be used at traditional markets as an alternative to cash as well as financial aid for child care services for families where both parents work while children stay at home as schools are closed due to the outbreak.

“In some ways, these are a small version of disaster support customized for families in difficult times,” Hong said.

The push for the disaster allowance comes as there are doubts on the effectiveness of the spending plans in the government’s supplementary budget.

The National Assembly Budget Office (NABO) on Tuesday recommended cash allowances over the government coupon program.

In its analysis on the supplementary budget, the NABO said the coupon program will not be effective as the local governments will struggle to swiftly circulate the coupons in the market while some of the local governments don’t have coupons of this type for immediate issue. Only a limited number of stores can accept these coupons.

Some experts have also questioned their effectiveness as disaster relief.

Kang Sung-jin, economics professor at Korea University, said in times of crisis, people tend to hoard income rather than spend it.

“It’s hard to expect economic revitalization by adopting programs like basic disaster income,” Kang said.

Some have argued on the need to roll out measures that are more effective, such as tax cuts.

Earlier economic stimulus packages have included individual consumption tax cuts. U.S. President Donald Trump earlier this week announced a payroll tax cut as a stimulus measure.

Pressure is mounting in Korea, with some politicians urging the government to adopt the allowance to replace the coupons.

“The 11.7 trillion won supplementary budget proposed by the government is mostly tax cuts and loan expansion that take time to be effective,” said Sim Sang-jung, head of the Justice Party on Wednesday. “In the supplementary budget, 2.4 trillion won is a direct support of daily lives.”

“But the coupons are not enough to prevent lives from shattering.”

The lawmakers are currently reviewing the 11.7 trillion won package that was submitted a week ago.

While the deadline is set for Tuesday, when the current session ends, lawmakers are currently mulling over the idea of expanding the supplementary budget.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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