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[News Focus] Bill to assist self-employed faces budgetary, political hurdles

A clothing shop in Jung-gu, central Seoul, has closure signs up earlier this month as social distancing regulations stemming from the COVID-19 pandemic diminished revenues and income for small merchants and self-employed population. (Yonhap)
A clothing shop in Jung-gu, central Seoul, has closure signs up earlier this month as social distancing regulations stemming from the COVID-19 pandemic diminished revenues and income for small merchants and self-employed population. (Yonhap)
The South Korean government and the ruling Democratic Party of Korea are pushing for a legislation to compensate the self-employed and small-business owners for losses incurred during the COVID-19 pandemic.

But the move faces budgetary constraints and criticism from opposition parties, which say the ruling camp is using the plan to boost its ratings ahead of the April 7 mayoral by-elections.

The Democratic Party is internally discussing a bill that it hopes will pass during the provisional session of the National Assembly, so the government can start distributing funds to sectors affected by the COVID-19 pandemic.

President Moon Jae-in lent his support to the move, calling on officials to “institutionalize loss compensation for small-business owners and the self-employed within a certain range that (the government) can afford.”

“It is very important and urgent to protect the lives of the people from the economic and social blows caused by the coronavirus,” Moon said, emphasizing that a strong social safety net is needed to protect those who were affected by the virus and social distancing measures.

But critics ask who should be entitled to support and how much they should be given. Furthermore, there are concerns that the government’s finances could be overextended. Some say the plan carries risks that may be too much for the government to bear.

On the question of how much is needed, some estimates have put the figure at 100 trillion won ($90.54 billion) to cover four months of losses for businesses that were shuttered or forced to scale down their operations due to the social distancing rules.

According to data from Rep. Min Byoung-dug of the Democratic Party, to compensate businesses for part of the revenue they lost as a result of social distancing -- between 50 percent and 70 percent -- the government would need around 25 trillion won per month.

That amount could be even greater if the government chooses to compensate businesses whose revenue diminished despite the social distancing regulations not having directly affected them.

If compensation is to be provided to small businesses in all sectors that saw revenue drops during the COVID-19 pandemic, a debate could ensue as to how much of the lost revenue was attributable to the pandemic and social distancing rules as opposed to other factors.

The government would also have to decide whether to compensate freelancers and contract workers, who could be categorized as self-employed.

To fund the plan, the ruling party has been reviewing another supplementary budget.

“It is difficult to carry this out with the current budget,” said Rep. Hong Ihk-pyo of the ruling party in a radio interview Monday. “We will need to prepare a supplementary budget if needed.”

The Ministry of Economy and Finance has already expressed concerns, saying the bill is not financially feasible and would push Korea beyond what its finances can handle.

To cope with the economic losses stemming from the pandemic, last year Korea passed four supplementary budgets amounting to 66 trillion won in total, prompting worries about the country’s fiscal health and debt level.

The extra budgets pushed the government debt-to-GDP ratio to 43.9 percent by the end of last year, up 5.8 percentage points from a year earlier.

In terms of its fiscal health, Korea is in better shape than many other major economies, allowing more room for the country to increase its fiscal spending to respond to COVID-19 losses, but many people worry about the debt that the country could accumulate.

As the government plans to execute 63 percent of its 558 trillion won national budget in the first half and sell 176.4 trillion won-worth of state bonds, the country’s debt is forecast to surge 150.8 trillion won on-year to 956 trillion won by year-end, according to the Finance Ministry.

The ruling party also faces criticism from opponents who say the proposed bill is part of a populist political campaign to increase support for its candidates for the Seoul and Busan mayoral seats during the April by-elections.

Some lawmakers also say the government and the ruling party are allocating an unrealistically short timeline to push the bill forward.

“The populistic move that the ruling party is drawing ahead of the April by-elections for the Seoul and Busan mayoral seats is very much worse than the disaster relief fund campaign pulled off ahead of last year’s general elections,” said Ahn Cheol-soo, head of the minor opposition People’s Party.

“It is a blunt announcement that the ruling party will overly involve itself in the election with monetary moves.”

By Ko Jun-tae (ko.juntae@heraldcorp.com)
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