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Pass the extra budget, but beware the debt

Published: 13 May. 2022, 10:30

President Yoon Suk-yeol has moved to act on his No. 1 campaign promise of fully compensating self-employed and small merchants for losses from state-enforced Covid-19 business restrictions. Yoon has promised to spend over 50 trillion won ($38 billion) to cover the losses of merchants.

The 110-point state agenda the presidential transition committee announced also set complete recovery for small merchants and self-employed as the first task of the new government.

The People Power Party (PPP) and government held their first party-government meeting and agreed on the outline of a second supplementary budget handing out a minimum of 6 million won ($4,700) to small merchants and self-employed. PPP floor leader Kwon Seong-dong said the move is to fulfill a campaign promise.

Fast and sufficient assistance is needed to help put small businesses damaged by Covid-19 back on their feet. Presidential candidates have all agreed on the move, while differing in the scale and method. But it is regretful that it was the party that took initiative, while the government merely accepted the outline presented.

The outline has differed from the transition committee’s proposal to differentiate the payout according to the business and damage in the face of criticism for breaking a campaign promise.

The party-government agreement proposes to pay out a minimum 6 million won to every business and raise the payout according to the damages. The transition committee’s so-called scientific calculation is gone.

The party and government agreed not to issue more government bonds to finance the second supplementary budget. When treasury issues increase on top of already excess supply, market yields would shoot up further and can worsen inflation.

The government plans to streamline existing spending plans and use extra taxes for the funding. Extra tax revenue is booked into reserves for bond repayment.

Using the funds is like spending the reserve for next year, which means more debt issues could take place next year to refinance maturing debt.

The compensation is necessary despite economic troubles from high inflation, rising interest rates and the strengthening dollar because of the woes of merchants. Chain bankruptcy of self-employed could result in higher welfare spending.

Delayed assistance would only raise the social toll. The second extra budget scheme must be expedited after legislative approval. The Democratic Party must cooperate. The sum should not increase during legislative review.