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New gov't proposes W59.4 trillion extra budget to help small businesses

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Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, second from left, speaks during a joint press briefing with relevant ministers on the government's extra budget plan at the Government Complex in Seoul, Thursday. Yonhap
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, second from left, speaks during a joint press briefing with relevant ministers on the government's extra budget plan at the Government Complex in Seoul, Thursday. Yonhap

Targeted beneficiaries to receive at least W6 million in relief

By Yi Whan-woo

The new government earmarked 36.4 trillion won ($28.3 billion) largely for compensating small business owners who suffered under pandemic restrictions, Thursday, as part of the nation's second extra budget plan of 59.4 trillion won this year.

The plan was endorsed at a Cabinet meeting later on Thursday and will be submitted to the National Assembly on Friday.

The second supplementary budget, following the first round of 16.9 trillion won allotted by the former Moon Jae-in administration early this year, is line with President Yoon Suk-yeol's top pledge of providing a relief package for the affected merchants on the country's path to economic recovery.

"I ask the relevant ministers to do their best for the extra budget plan to be approved swiftly by the Assembly," Yoon said during the Cabinet meeting at the presidential office in Yongsan District, Seoul.

During a joint briefing of the ministries of finance, welfare, SMEs and food, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho also requested the National Assembly to pass the bill in a prompt manner.

"It is more than a matter of living, and rather a matter of survival for small businesses under dire economic circumstances," Choo said. "The government will help them overcome challenges through the supplementary budget."

Of the 36.4 trillion won, 26.3 trillion won is to be spent for "direct support" of the targeted businesses.

For instance, an estimated 3.7 million micro enterprises as well as small and medium-sized enterprises will be eligible to receive compensation between 6 million won and 10 million won, respectively, based on decline rates in their sales.

The medium-sized enterprises were included on the list of possible beneficiaries under a condition that their sales have been reduced to a range between 1 billion won and 3 billion won.

Emergency financing worth 1.7 trillion won is also planned for the debt-ridden businesses to take out new loans or repay loans at a lowered interest rate.

The 36.4 trillion won additionally includes the expenses to stabilize people's livelihoods, namely preventive measures against the pandemic, cash handouts as well as energy vouchers for low-income households and relief funds for regions hit recently by wildfires.

The remaining 23 trillion won of the 59.4 trillion won extra budget is for support of local governments' administrative policies and relevant taxes.

While the extra budget is for the sake of the economy, Yoon's pledge has raised concerns over a possible increase in government spending, which could aggravate soaring inflation and offset the effects of the central bank's hike in interest rates to curb inflation.

Under the circumstances, the Ministry of Economy and Finance underlined that no treasury bonds will be issued to minimize the negative impact on soaring prices.

It explained that the entire 59.4 trillion won instead will be financed mostly through excess tax revenue, plus restructuring of the 2022 budget and squeezing out costs for non-mandatory spending purposes.

"The government had to come up with the second supplementary budget despite inflationary risks, considering many small business owners are struggling over spikes in oil prices and others and desperately need relief support," Choo said in a press briefing.

He went on to say the supplementary budget will have only a limited impact on inflation, noting more than 70 percent of the 59.4 trillion is categorized as transfer payments.

In fiscal policy, a transfer payment commonly refers to efforts by local, provincial and federal governments to redistribute money to those in need.

Such payments do not result in investment or exchange of goods and services, and thus supposedly have no influence on GDP or inflation.

An analyst echoed a similar view with the government.

"The Yoon government's supplementary budget, when it comes to influence on the inflation, is different from cash handouts doled out to all individuals during the Moon government," said Joo Won, deputy director of Hyundai Research Institute.

"The budget this time will be spent for the merchants to cover up financial losses and pay off their debts, which I don't think will affect prices significantly."


Yi Whan-woo yistory@koreatimes.co.kr


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