Three days before the June 1 local elections, the National Assembly passed a 62 trillion won ($50 billion) extra budget mainly aimed at compensating small merchants hit financially by the COVID-19 pandemic.
Through negotiations between rival parties, its amount increased by 2.6 trillion won. The number of those eligible for compensation also increased sharply.
In order to expand the extra budget, they reduced government debt scheduled to be repaid -- by 1.5 trillion won from 9 trillion won to 7.5 trillion won. The government says that no bonds will be issued, but debt repayment will be behind schedule.
Of the extra budget, 53.3 trillion won will come from tax revenue surplus that the new government expects to collect. In other words, compensation will be made on credit. The government reportedly will borrow money from the Bank of Korea and repay it with tax to be collected later. This is a way to avoid issuing bonds, but it cannot avoid increasing money in circulation and stimulating inflation.
The prospect of collecting tax revenue surplus as much as estimated is uncertain. The central bank revised the growth outlook for this year sharply downward. The government may have been too optimistic in estimating tax revenue surplus. What if the surplus falls short? The prolonged war in Ukraine and the global monetary tightening are obstacles to securing tax revenue.
It is problematic that the latest extra budget is already the second one of this year. Two years ago, the government compiled an extra budget twice -- in March and April, but on convincing grounds that the nation at that time was in the early days of the pandemic.
However, it is less convincing that an extra budget was drawn up as many times last year -- in March and July. Economic impacts from the pandemic could have been expected a year earlier and reflected in last year’s main budget. In the first half of this year, the government repeated the same thing in addition to the largest-ever main budget.
Reasonable compensation is necessary to make up for losses small merchants and the self-employed suffered due to the pandemic and social distancing. But it seems immoderate to hand out coronavirus relief cash again through the second extra budget, drawn up just a few months after cash payment was made through the first one early this year. The second extra budget is more than three times as much as the first 17 trillion won one.
The latest extra budget leaves a politically bitter aftertaste in that a cash handout was repeated ahead of elections.
Its parliamentary passage came just about an hour before the term of the speaker for the first-half period of the assembly ended.
The opposition Democratic Party of Korea demanded a 11 trillion won increase for retroactive compensation, but at the last moment compromised. The party probably judged that if it blocked the extra budget itself or dragged on for long enough to make compensation begin after the local elections, voters may go against it. It procrastinated as long as possible and cut a deal at the last minute.
The ruling party was satisfied at being able to start handing out cash before the local elections, while the opposition party boasted that it increased the extra budget. Budget principles and fiscal soundness were less important. They racked their brains trying to figure out ways to get more votes.
Before the presidential election, the Democratic Party pushed the payment of pandemic relief money to small merchants. The then-opposition People Power Party could not but make a similar promise in a bid to avoid losing votes. They were mired in populist competition.
It is worrying that rival parties seem to routinize pledging extra budgets ahead of elections. There should be no more political extra budgets with an eye on getting more votes.
By Korea Herald (email@example.com