The Ministry of Economy and Finance initially wanted to provide relief money to all households in the country that earned less than the median income, to help them through hardships caused by the coronavirus pandemic.
After consultations with the ruling Democratic Party of Korea, the ministry announced in March that the government would offer up to 1 million won ($820) in rescue funds to households in the bottom 70 percent income bracket.
During the campaign for the April 15 parliamentary election, the liberal ruling party vowed to expand the scope of the planned relief and cover all 21.7 million households in South Korea. To the regret of sensible pundits and voters, the populist pledge appears to have helped the ruling party win a landslide victory in the election.
After the election, the ruling party and the Finance Ministry found themselves at odds over the question of universal relief money.
Finance Minister Hong Nam-ki adamantly adhered to the rescue program made public in March, emphasizing the need to preserve fiscal room to cope with the economic fallout from the COVID-19 outbreak.
The indiscriminate distribution of relief money to all households is not an efficient way to provide urgently needed financial support to those most vulnerable, including small-business owners and temporary and daily workers.
The ministry’s initial proposal to offer rescue funds to households whose incomes stood at or below the median would have been the most reasonable option.
A day after the election, the Finance Ministry submitted to the parliament a 7.6 trillion won extra budget bill designed to help finance the planned relief program, which is estimated to cost 9.7 trillion won. The remainder of the cost is set to be covered by local governments.
The ministry readjusted items on the regular budget for this year so it could fund the proposed supplementary budget without issuing additional state bonds.
But the presidential office stepped in and tipped the scales in favor of the ruling party’s proposal to dole out money to all households.
A presidential spokesperson said Friday that the government would begin accepting applications from households May 11 and making payments two days later.
Around 2.7 million households within the lowest income bracket -- those eligible for existing welfare programs -- would begin receiving relief money on May 4.
The presidential office pressed the parliament to pass a supplementary budget no later than Wednesday in order to meet the payment schedule.
Following the statement from the presidential office, the Finance Ministry accepted the ruling party’s demand and increased the extra budget to 11.2 trillion won by issuing 3.6 trillion won worth of state bonds.
The government may have to sell more debt if cash-strapped local governments find it difficult to shoulder their combined additional burden of 1 trillion won.
To ease budget constraints, the presidential office and the ruling party have suggested asking the wealthy to voluntarily give back their share in the form of donations.
President Moon Jae-in is said to have initiated the idea as a way to facilitate an agreement between the ruling party and the Finance Ministry.
Finance Ministry officials say they are considering revising related laws in order to offer tax deductions to those who choose not to apply for relief money or who return it to the state coffers.
It goes against fiscal principles to draw up a rescue program on the assumption that some of the recipients will donate their share.
Government officials hope such donations will save more than 1 trillion won, but the actual amount may fall short.
High-income earners will likely feel pressured to give back their relief money, though officials at the presidential office say voluntary contributions will be encouraged as a way to enhance national cohesion.
If voluntary donations by households in the top 30 percent income range fall short of expectations, less privileged people may become disgruntled, thus amplifying social conflicts.
It may be unjust to put high-income earners to such a moral test.
According to data from the National Tax Service, earners in the top 30 percent income bracket paid nearly 95 percent of the country’s total earned income tax of 38.3 trillion won last year. It should be noted that the envisioned relief program will be funded largely by taxes collected from them.