By Sam Kim
July 1, 2021
South Korea is planning to distribute 250,000 won (around $220) to all members of the bottom 80% earning households in an effort to even out the benefits of an economic recovery from the pandemic.
The handouts would account for one third of a 33 trillion won extra budget proposal the government officially released on Thursday to address a lagging recovery in jobs and small businesses, which contrasts with rallying exports. The stimulus would also aid vaccine purchases, job training and regional economies, the finance ministry said in a statement.
Stimulus for Recovery
Handouts for individuals are major part of stimulus to aid recovery.
The size of the budget was in line with the amount tipped by the ruling party earlier this week. The fresh stimulus shows Korean authorities are determined to ensure the pandemic recovery doesn’t lose momentum, and are confident of the health of its fiscal balance.
The handouts will be provided through credit or check cards and applied to all family members, allowing a four-person household to receive 1 million won. An additional 100,000 won would be given in cash to roughly 3 million citizens classified as low earners.
This is to “compensate the public who suffered under the prolonged pandemic, and to improve income inequality,” the statement showed.
Among the 33 trillion won, just over 10 trillion won will be used for handouts. Some 12.6 trillion won will be funneled to support regional economies, while 3.9 trillion won will be used to compensate small businesses that suffered from pandemic restrictions. Another 4.4 trillion won will go to the vaccination drive, and 2.6 trillion won to support jobs, including vocational training.
The proposal follows a ministry forecast last week that the economy will grow 4.2% this year, a full percentage point higher than its earlier projection. The government sees the new stimulus lifting consumption, while exports extend their record performance.
The extra budget, if passed, would be the sixth of its kind since the virus hit the country and one of the biggest fiscal actions by President Moon Jae-in. The president has called for expansionary fiscal spending through next year — when he steps down in May — to facilitate an even recovery across sectors.
Separately, the statement showed the government intends to use 2 trillion won to repay debt. That would lower the government’s debt ratio to gross domestic product for this year to 47.2% from 48.2%. No bonds will be issued to fund the newest stimulus.
The latest proposal comes against the backdrop of a Bank of Korea inclined to scale back its monetary stimulus in the months ahead. With the economy steadily expanding, the central bank is more concerned about growing financial risks morphing into a new crisis.
BOK Governor Lee Ju-yeol has recently said the bank would start normalizing this year, while downplaying arguments of a policy misalignment with the finance ministry. Finance Minister Hong Nam-ki said Monday that monetary and fiscal policies need not move in tandem.