Monster supplementary budget passed
A record-breaking 35.1 trillion won ($29.3 billion) supplementary budget was approved by the National Assembly late Friday.
The third such extra budget this year alone is mainly focused on preventing job losses.
The first, which totaled 11.7 trillion won, committed to funding Covid-19 quarantines, small businesses and vouchers for low-income households. That budget was followed by a 12.2 trillion won supplementary budget — one aimed at keeping the economy going and protecting small businesses with the disbursement of emergency relief grants by delivering a maximum of 1 million won to every household.
A 35.3 trillion won third extra budget had been requested by the government, 200 billion more than what was finally approved.
During their week-long review of the proposal, the legislators cut 1.5 trillion won of spending and added 1.3 trillion won.
The cuts were mostly related to regional vouchers to be handed out to get people to spend. Initially, 2 trillion won had been proposed, but by the end, 1 trillion won was approved.
Legislators boosted job support, especially on behalf of youth employment.
The ruling party has been losing backing from younger Koreans recently because of policies that potentially harm the demographic, such as real estate market interventions.
According to the Finance Ministry, the final budget approved by the lawmakers increased job support by 500 billion won.
Funding for a program that helps companies keep employees on payroll by covering 90 percent of the wages of workers on paid leave was included in the budget, as was support for employment insurance.
The paid-leave measure was to end in June, but it will be extended for three months. A total of 900 billion won will be provided to the employment insurance fund, which is being flooded with applications for benefits.
Lawmakers added 400 billion won of spending targeted at younger Koreans, including that related to housing, finance and jobs. Support for jeonse — long-term housing rental deposits — loans for young people and low-interest loans are included in the budget.
A total of 100 billion won is in the budget for the refunding of university tuition, a highly controversial issue. Students have been demanding a return of their money as classes have not been operating normally. The Finance Ministry objected to the refunds, but the ruling party pushed them forward.
Korean New Deal funding was also included in the supplementary budget.
This is the first budget to support the Moon Jae-in government's grand plan.
A total of 4.8 trillion won is being allocated to the policy initiative, including relevant infrastructure spending — down from the requested 5.1 trillion won. Some of the cuts were the result of overlapping with other programs.
The government plans to spend 75 percent of the third budget in the next three months.
It estimates that roughly 8.92 million workers will benefit from the budget, including 3.21 million workers who are at risk of losing their jobs, 1.01 million small business owners and 4.72 million benefiting from quarantine support.
The latest budget is the largest single extra budget ever approved.
The previous record was the 28.4 trillion won budget passed in 2009 during the global economic crisis.
It is also the first time in nearly half a century where three extra budgets have been approved.
Record breaking speed
The third budget passed on the floor of the National Assembly at breakneck speed.
It took only 30 minutes for the budget proposal to be approved, as the main opposition party was absent and the Democratic Party (DP), which dominates with 176 seats, overwhelmingly supported the budget.
Of the 187 lawmakers attending, 179 voted in favor while only a single lawmaker voted against.
The United Future Party (UFP), the main opposition party which has 103 seats, refused to participate in the third supplementary budget review.
"The third supplementary budget from start to the review process and to the end didn't have the public [in mind], and there has only been the president," said Lee Jong-bae, the conservative party's policy chief. "It is the worst supplementary budget, and the National Assembly [is] reduced to a formality," rather than an equal governmental branch.
Justice Party lawmakers withdrew their support in protest of the unprecedented speed at which the budget was reviewed, claiming that legislators have failed to review the budget thoroughly.
The proposal was in the National Assembly for 28 days, while the standing committee, which began the process on June 29, reviewed it in a week.
The Justice Party claimed that it couldn't vote in favor of the supplementary budget because it needed more specifics on the spending and did not have enough time to properly review all the details. The party added that it couldn't vote against the budget because people are in desperate straits.
"The historically large 35 trillion won budget review at the National Assembly's budget sub-committee was all done in just two days by five Democratic Party lawmakers," said Bae Jin-gyo, floor leader of the Justice Party. "Failing to properly review the 35 trillion won supplementary budget to meet the deadline set by the Blue House is an act that forgets the reason the National Assembly exists."
Democratic Party floor leader Kim Tae-nyeon continued to defend the passage of the budget.
"To some people, it may look as though [the budget review] was done at lighting speed," Kim said. "[But] we have given a lot of thought and made a lot of effort in trying to maximize the supplementary budget from creation to execution."
Last week, Kim said that the party has long been reviewing the budget and that its swift preliminary review last week sufficed.
"This week's review isn't the only evaluation process," Kim said. "Even before the budget proposal was submitted [to the National Assembly], we had an adequate discussion with the government, and after its submission, each standing committee has been conducting early reviews through separate meetings and discussions with the government."
He said as the opposition United Future Party did not participate in the review of the supplementary budget, the ruling party reviewed the proposal more thoroughly.
Increasing government burden
With the third budget approved, the total newly added extra budget this year is 59 trillion won — an unprecedented amount that exceeds the totals achieved under both the Lee Myung-bak and Park Geun-hye administrations.
During the Lee administration, there were two supplementary budgets over five years, totaling 33 trillion won. Park's government, which only lasted four years, came in at 40 trillion won. The Moon government passed 20.9 trillion won in supplementary budgets from 2017 and 2019.
With the third budget, this year's total comes to 546.9 trillion won, which is a 16.5 percent increase from last year. The Finance Ministry forecasts that the deficit this year will come in at 76.2 trillion won, up from the 30 trillion won estimated before the three extra budgets.
The national debt is expected to rise to 839.4 trillion won in 2020, a 13 percent increase from the 740.8 trillion won in 2019. As a result, the national debt-to-GDP ratio is expected to hit 43.5 percent, an all-time record.
Last year, the debt ratio was 39.8 percent, close to the 40 percent limit that was previously set by the government.
During the cabinet meeting on Friday, Prime Minister Chung Sye-gyun emphasized the urgency of the supplementary budget over concerns of worsening fiscal soundness.
"There are concerns over the fiscal balance, but we are currently in a state of war," Chung said, referring to the coronavirus. "If we don't stop the fire immediately, we could be in more dangerous situation."
Chung stressed the fact that Korea's national debt-to-GDP ratio is much lower than the average OECD ratio, noting that the International Monetary Fund (IMF) is advising "large-scale selective fiscal actions."
In its press release on Friday, the Finance Ministry said the aggressive supplementary budget will not only help overcome the current crisis but will also help drive growth. The increase in growth will in turn contribute to increases in tax collections, it added.
The government is hoping that its preemptive actions will keep Korean economic growth positive at 0.1 percent this year. It says that it has provided 277 trillion won of support, including the third supplementary budget.
The Korean government noted that while the IMF last month projected that the Korean economy would contract 2.1 percent this year — a revision from the 1.2 percent drop forecast in April — it is still the third strongest economic estimate in the G20 after China (1 percent growth) and Indonesia (0.3 percent contraction).
BY LEE HO-JEONG [email@example.com]
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