Economists skeptical of Lee's '250,000 won for all' proposal

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Economists skeptical of Lee's '250,000 won for all' proposal

Published: 14 Jun. 2025, 07:00

Audio report: written by reporters, read by AI

Restaurants waiting for customers on June 12 in Seoul [YONHAP]

The Lee Jae-myung administration is considering a supplementary budget of approximately 20 trillion won ($14.8 billion), which includes a direct cash handout labeled “livelihood recovery support” to boost domestic demand.

However, experts warn that direct cash subsidies are among the least effective fiscal tools for stimulating economic growth. Given the current shortfall in tax revenue, economists are advising the government to adopt more efficient stimulus methods.

The presidential office and the Ministry of Economy and Finance said Wednesday that the government plans to finalize an extra budget proposal as early as the end of this month during a Cabinet meeting. The total size is expected to be around 20 trillion won, likely including allocations for livelihood support as well as investment in semiconductors and AI.

Debate continues over whether the cash payments should go to all citizens or be distributed selectively. The ruling Democratic Party had previously proposed a 13 trillion won plan to distribute 250,000 won to each citizen. However, the government’s economic team has reportedly argued in favor of a targeted distribution approach.

Experts say that regardless of whether support is universal or selective, cash handouts are the least desirable option from a stimulus perspective. In its “Results of Bank of Korea Macro-Econometric Model (BOK20) Construction,” the Bank of Korea analyzed three types of fiscal expenditure: government consumption, government investment and transfer payments — with cash handouts classified as transfers.

President Lee Jae-myung speaks at a Cabinet meeting on June 13 in Yongsan, central Seoul. [JOINT PRESS CORPS]

Cargo stacked up at Busan Port in Busan on May 30 [NEWS1]

According to the model, when the government injects 1 trillion won into the economy, real GDP increases by an average of 910 billion won through government consumption, 860 billion won through investment and only 330 billion won through transfer payments, or direct subsidies. In other words, fiscal multipliers for government spending and investment reach 80 to 90 percent of the input, while cash transfers remain around 30 percent.

The relatively low impact of direct cash transfers is due to the “consumption substitution” effect.

Unlike government consumption or investment, which directly raise total demand and GDP, cash recipients often use the funds to cover spending they would have made anyway and save the rest. This diminishes the net impact of the stimulus. A 2020 study by the Korea Development Institute (KDI) on the Moon Jae-in administration’s first emergency relief payment found similar results. According to KDI, industries eligible for the subsidy saw sales increase by only 26.2 to 36.1 percent relative to the total funds disbursed.

Citizens shop at a traditional market in eastern Seoul on June 9. [NEWS1]

Then-Democratic Party presidential candidate Lee Jae-myung holds a campaign at a traditional market in Suwon, Gyeonggi, on May 19. [JOONGANG ILBO]

Korea’s aging population is also dampening the effect of cash-based stimulus.

According to a recent report by the Korea Chamber of Commerce and Industry, Koreans spent an average of 73.6 percent of their income in 2017 and only spent 70.3 percent last year. Among people in their 60s — a group with declining income but steady debt and tax obligations — the drop was even steeper, from 69.3 percent to 62.4 percent. This suggests that in an aging society with tighter wallets, handing out cash is unlikely to immediately boost spending.

“It’s better for the government to spend directly on infrastructure for future industries such as AI if the goal is to raise the growth rate,” said Kang Sung-jin, an economics professor at Korea University. “Cash transfers should be used selectively to strengthen the social safety net for low-income groups, rather than as a general stimulus.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM NAM-JOON [[email protected]]