With South Korea’s presidential election scheduled for less than nine months from now, the incumbent Moon Jae-in government and the ruling party are planning on issuing another round of stimulus checks. Some experts in South Korea expressed concerns that the government is trying to buy votes using the government’s budget and taxpayer money just as it did in April 2020.
At that time, the government issued stimulus checks of 1 million won ($900) per family with four or more members. Smaller households received a smaller amount based on their family size. That was the first time that a South Korean government gave such financial support to individuals. The ruling Democratic Party (DP) won an overwhelming number of seats in the general election held that month – although winning by improbably consistent razor thin margins in roughly forty districts also contributed to allegations of electoral fraud.
On June 2, Rep. Kim Sung-hwan, deputy leader of the DP, said the party is planning on issuing stimulus checks before the summer vacation season at the earliest or before the Chuseok holiday in September at the latest. “President Moon Jae-in already mentioned providing compensation to people to boost the economy when the Covid-19 situation settles down,” Kim said. “We will negotiate closely with the administration.”
South Korean political parties will hold primaries to select their presidential candidates in late summer and the process will be finalized in September. This is why conservative politicians and media outlets argue that the DP is trying to use stimulus checks to influence the upcoming presidential election.
According to South Korean media reports, the DP is planning on passing a supplementary budget to pay for stimulus checks. Last year, the government gave checks based on household status. This time the DP plans on paying every individual 300,000 won ($270) or 250,000 won. This would amount to 15.3 trillion won ($13.7 billion) if they plan on giving 300,000 won per person. This year’s supplementary budget could exceed 30 trillion won when considering the other payments that the DP plans on providing. The party is also considering writing off the debt of small business owners who were affected by the pandemic.
The Moon administration has been criticized for its excessive spending before. The government debt was 660 trillion won when the Moon administration came to power in 2017 and it has gone up to around 1,000 trillion won. The debt-to-GDP ratio rose from 36 percent in 2017 to 48.2 percent now. The ratio is expected to increase to 60 percent in 2024 due to hikes in spending on welfare-related projects.
Global credit appraiser Moody’s Investors Service also warned about South Kore’s debt situation. “The government’s outlook for continued fiscal accommodation beyond the immediate recovery from the coronavirus pandemic sees debt rising to historically high levels, thus testing the long-established track record of fiscal discipline,” it said in May.
The main opposition People Power Party (PPP) is against the DP’s move to issue another round of stimulus checks. PPP members held a press conference at the National Assembly on June 2 and argued that it is not the time to discuss issuing stimulus checks to everyone, but that help should be directed to small business owners who were hit hard by the pandemic. The PPP members introduced a bill to pay for small business owners’ losses due to the Covid-19. They are planning on protesting at the National Assembly to ask the DP to join them in passing the law.
“The government and the Democratic Party are those who do not spend money on areas where they are most needed,” said Kang Min-koo, a spokesperson of the PPP. “They are not passing a damage relief bill to help people hurt by Covid-19 by arguing that the government budget is limited, but are bringing up things like another round of cash relief and a supplementary budget which require a tremendous amount of the government’s budget. I have no other way but to see them as populist policies ahead of the presidential election.”
The ruling party agrees with the purpose of the bill that would aid small business owners, but disagrees with retroactively applying the law to include small business owners affected by the pandemic from August of last year, which was when the government issued level 2.5 social distancing measures. The government also argues that it is difficult to check the operating profit of small business owners to find out their damage from the pandemic since the tax filing deadline for this year was just last month.
Whether stimulus checks can actually boost the economy is a controversial subject. According to a study by the Korea Development Institute, only 30 percent of the 14 trillion won first round of stimulus checks sent last year actually led to an increase in people’s spending. The Korea Economic Research Institute issued a report recently that said it was more effective to give money to people who were affected by the pandemic instead of giving it to everyone. The institute studied the economic impacts of stimulus checks in South Korea, the United States, and Japan last year.
The JoongAng Ilbo newspaper ran an editorial on the topic titled “More harm than good” on June 3.
“The new round of cash relief will likely be doled out shortly before September, when the DP determines its presidential candidate for the 2022 election. As the Chuseok holiday is in September, it is good timing. But the handouts will likely backfire. The expected increase in tax revenues should be used for repaying the government’s debt to help lessen the tax burden on future generations. They should resist the temptation if their purpose is to hand out cash to show generosity ahead of the presidential election.”
