Government support should focus on small firms and low-income households

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Government support should focus on small firms and low-income households

Published: 16 Jun. 2025, 00:04

Audio report: written by reporters, read by AI

Kang Sung-jin

The author is a professor of Economics at Korea University and incoming president of the Korean Economic Association

President Lee Jae-myung has identified economic revitalization and the recovery of livelihoods as his top policy priorities. Emphasizing a “flexible, pragmatic administration” and a “practical market-oriented government,” he issued his first executive order to launch an emergency economic task force. These early moves reflect the gravity of Korea’s current economic challenges.

President Lee Jae-myung speaks during a meeting n central Seoul on June 13. [PRESIDENTIAL OFFICE]

Unlike past crises such as the 1997 Asian financial meltdown or the 2008 global financial crisis, today’s downturn stems more from weakened domestic fundamentals than external shocks. The Covid-19 pandemic severely eroded household consumption capacity, and Korea’s major industries are losing global competitiveness. The country now faces the dual challenge of achieving both equitable distribution and economic growth, all while navigating a restructured global supply chain and a new international order focused on economic security.

Against this backdrop, the government appears poised to pursue a basic income scheme to stimulate domestic demand. While a comprehensive universal basic income is likely unrealistic, a scaled-down version aimed at guaranteeing a minimum standard of living merits serious consideration. Such a program could function as a safety net for struggling youth and small business owners. Local currency vouchers could also be more effectively targeted at low-income households to boost immediate consumption.

Securing housing stability is another critical issue. The government should shift away from a home ownership centered approach and instead expand the supply of public rental housing. This would allow lower-income families to live in stable environments without the pressure of speculative investment.

More urgently, policies are needed to restore economic momentum and cultivate long-term growth industries. In his inaugural address, President Lee pledged to support “creative and proactive business activity” and promote a regulatory environment that encourages entrepreneurship. During the campaign, he identified artificial intelligence as a key growth engine, announcing plans to mobilize 100 trillion won ($73 billion) in private-sector investment and attract global AI talent to Korea.

While his inaugural speech lacked specifics on short-term recovery plans, the general direction is clear. Large corporations with ample capital and technology can be left to operate freely under a deregulated market. Government support should be concentrated on small businesses and microenterprises. Rather than blanket debt relief, the focus should be on reducing interest burdens or deferring principal payments through targeted policy tools.

The challenge, however, lies in the limited policy levers available. Household consumption has already weakened significantly due to high interest rates and record levels of household debt. Korea’s household debt-to-GDP ratio is now among the highest in the world.

Fiscal constraints further complicate the situation. Although the growth rate of government spending has slowed this year, the consolidated fiscal deficit is still projected to exceed 77 trillion won. That’s up from 54.4 trillion won in 2019, and last year the shortfall ballooned to 104.8 trillion won. With this year’s projections included, national debt (D1 standard) is expected to reach 1,277 trillion won — 48.3 percent of GDP — nearly double the ratio recorded in 2017.

The government is thus caught between the need to stimulate the economy and the imperative to maintain fiscal sustainability. Tax revenue projections remain uncertain due to the economic downturn, yet the National Assembly is moving forward with sweeping amendments to the Commercial Act and other legislative initiatives such as the “yellow envelope” law and a four-and-a-half-day workweek. Whether these measures will meaningfully contribute to recovery is still unclear.

Shoppers walk past vendors at a traditional market in Jongno District, central Seoul, on April 15. The Korean government announced a supplementary budget aimed at addressing urgent national priorities including small business support on April 18. [NEWS1]

In times of deep uncertainty, policymakers must proceed with caution. As the saying goes, “Tap the stone bridge before crossing.” New systems and reforms should be preceded by thorough public debate and consensus-building.

President Lee’s stated ambition to drive economic recovery through government-led initiatives depends on adequate fiscal support. The supplementary budget currently under discussion reflects this urgency. Yet, with a significant fiscal deficit already in place, identifying ways to finance these initiatives without further inflating national debt will be a major hurdle.

What the administration needs now is the wisdom to balance limited fiscal space with policies that can energize markets and improve livelihoods. Achieving both goals simultaneously will require not just determination, but the prudence of a modern-day Solomon.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.