Input 2021.02.22 16:02 | Revision 2021.02.22 16:30
Speed battle for payment before the April election… “Executed in March”
Treasury bond yields surpassed 1.9% by adding extra budget… Interest burden for the common people↑
1,000 trillion won in national debt is inevitable when national support is paid
The government and the ruling party plan to subdivide and pay the grades of small business owners and self-employed persons according to the degree of damage caused by the new coronavirus infection (Corona 19) quarantine measures. It is also predicted that the amount of subsidies that the victimized self-employed person can receive can reach up to 7 million won according to the results of the party-government negotiations.
As President Moon Jae-in and the Democratic Party are demanding “wider and thicker” support, the 4th disaster subsidy is expected to increase both the scope of payment and the maximum payment amount compared to the 3rd disaster subsidy. Accordingly, it is predicted that the size of the supplementary budget will be close to 15 trillion won. In addition, it is possible that the Democratic Party came out with support for the lower income of 40% after the announcement of household trends in the fourth quarter of last year when income distribution worsened, and the additional budget would exceed 20 trillion won.
The party government is planning to process an additional bill in the National Assembly in March so that disaster support can be paid before the by-election in April.
◇ 4th disaster support fund, both scope and upper limit increased from the 3rd
The 3rd disaster support fund was paid for annual sales of ‘1 billion won or less’ in the prohibited and restricted businesses, and annual sales of ‘400 million or less’ in general industries. However, in terms of sales, food and beverage companies that have made profits due to increased delivery are eligible for payment, but convenience stores with almost half of cigarette sales with little margin are excluded from the payment.
Accordingly, the government and the ruling party are known to have gathered their opinions in the direction of raising the annual sales standard to ‘1 billion won or less’ for general industries. Deputy Prime Minister Hong Nam-ki and Minister of Strategy and Finance said in a report on the National Assembly’s Planning and Finance Committee on the 16th, “We have provided support for small business owners for less than 400 million won in sales, but plans to include additional people who suffer even if (sales) exceed 400 million won. He said, “We are considering trying to (expansion support) up to 1 billion won.”
In fact, it is also considering a plan to pay the disaster subsidies, which were given only to private businesses with fewer than 5 employees, to corporations with 5 to 9 employees. To encourage employment retention. On the 21st, the Korea Institute of Industry, a state-run research institute, suggested in a report on’Main Issues and Improvement Measures for Business Classification Criteria for Small Self-Employment Support’, “Starting from businesses with less than 10 employees, but it is desirable to perform additional screening.” . According to the industry association, in this case, 74,000 private businesses with 5 to 9 workers and 82,000 corporate businesses with 5 to 9 workers could be newly added to the support.
The target of the 4th disaster support fund is expected to be more subdivided than the 3rd disaster support fund, depending on the level of the Corona 19 impact. In the third round, KRW 3 million, KRW 2 million, and KRW 1 million were paid to 240,000 forbidden businesses, 810,000 for restricted businesses, and 1.75 million for general businesses, respectively, but in the fourth, collective prohibited businesses and general businesses were paid 2~ The method of subdividing into three groups and providing differential payments is discussed.
The maximum limit for the support fund will also increase significantly. The Ministry of Information and Transportation is considering a plan to increase the maximum cap from 3 million won to 5 million won in the third round. It is known that the ruling party is insisting on providing disaster subsidies up to 7 million won.
◇ Additional budget, government ’12 trillion’ to ruling party ’20 trillion + α’
It is reported that the ruling party is also demanding the government to provide a lump sum subsidy for the lower 40% of the income and to prepare an additional budget of 10 trillion won in the supplementary draft. If the bottom 40% of the income is calculated as about 10 million households, it is about 1 million won per household. The government said it is concerned that it does not meet the purpose of screening support and that there may be a controversy over equity among households within the boundaries of support standards. Some are known to have made such a request to include street vendors in the target of support. It is a message that they came out with support for the bottom 40% of their income to establish a justification for supporting street vendors who do not have tax information.
Support for the underprivileged, such as special type workers and freelancers, is also expected to increase. Earlier, at the time of the third disaster support payment, 500,000 won was paid to those who received the second aid and 1 million won to new beneficiaries, but there is a possibility that this will be supported in a similar way.
In addition to the disaster subsidies, the budget for employment subsidies and additional expansion of public jobs will be included in the supplement. First of all, a plan is under consideration to expand the special employment promotion incentive, which gives a certain amount of subsidy per person when small businesses and small and medium-sized enterprises hire new employees to expand private jobs. The government paid up to 1 million won per person per month (800,000 won for mid-sized companies) for 6 months to small and medium-sized companies that hired workers who had left last year due to Corona 19.
A plan to expand the employment maintenance subsidy, in which the government pays part of the leave-of-work allowance to business owners who leave their employees on leave due to poor management is also discussed. Currently, eight special employment support sectors, such as the travel industry, support up to 90% of the temporary suspension allowance, and up to 67% of the general industry. It is known that the government is promoting a plan to extend the period of designation for eight special employment support industries until the end of next month, and to increase support targets by adding some types of business such as city and intercity buses to the special employment support industries.
Accordingly, it is predicted that this year’s additional budget will be around 15 trillion won. It is known that the Democratic Party presented ’20 trillion won + α (alpha)’ and the Ministry of Information and Infrastructure (12 trillion won) as an additional budget.
The ruling party is planning to finalize the supplementary draft with such details by the end of this month and send it to the National Assembly after a resolution at the State Council on the 2nd of next month. This is to ensure that disaster assistance can be paid in March, before the Seoul-Busan mayoral by-election in April. To this end, on the 22nd, the ruling party received a report of the government’s proposal related to the disaster subsidy to the Ministry of Information, This weekThe plan is to confirm the supplementary plan.
◇ Exceeds’national debt of 1,000 trillion won, debt ratio of 50%’ within this year
The Ministry of Science and Technology predicted that the ratio of national debt to the national debt and gross domestic product (GDP) was 956 trillion won and 47.3%, respectively, when the budget for 2021 was formulated last year. However, if additional government bonds are issued as an additional supplement, the debt ratio could increase further. First of all, the ruling party is demanding an additional budget of 20 trillion won or more. In line with this, if a deficit government bond is issued by 20 trillion won, the national debt will increase to 976 trillion won, and the national debt to GDP ratio will increase to 48.3%.
Even if the loss compensation system for self-employed people is legislated after the April election, an additional budget is likely to be required, and additional budget is also needed when the’national condolence money’ mentioned by President Moon Jae-in recently is paid. In addition, additional financial resources are required when expanding the allowance for injuries and diseases. Considering these expected expenditures, there are concerns that the national debt could exceed 1,000 trillion won within the year. The national debt ratio will also exceed 50%.
The ruling party is in a position that even if the country’s debt surges, it should spend more money. Hong Ik-pyo, chairman of the Democratic Party’s Policy Committee, said in a radio interview on the 16th that “we need to make a more active and expandable fiscal budget at a level that our current finances can afford,” regarding the ratio of national debt to gross domestic product (GDP) after the addition. If you do, it is expected to increase to 52~53%.” At the end of this year, 52-53% of national debt is about 1041 trillion won to 1061 trillion won. In other words, the ruling party is considering additional issuance of deficit treasury bonds of up to 105 trillion won in order to supplement disaster subsidies.
The Ministry of Science and Technology and overseas credit rating agencies are raising concerns about this. This is because it can affect the financial market and negatively affect the sovereign credit rating, such as raising market interest rates as the issue of government bonds increases along with the problem of overloading future generations.
In the bond market, orders for selling long-term government bonds have already been followed, and the 10-year Treasury bond yield has recovered to the pre-Covid-19 level at 1.909% as of the 19th as of the 22nd, as well as May 13, 2019 (1.874%). It is the highest after 21 months. The steep rise in government bond yields could damage low-income groups and marginalized companies who are vulnerable to the interest burden. On the same day, Deputy Prime Minister Hong said, “The rate of increase in debt in Korea is very fast,” and “I am concerned about the fiscal deficit.”
There are also concerns about a decline in credit ratings. Fitch, one of the world’s top three credit rating agencies, warned last year that “if Korea’s debt-to-GDP ratio increases to 46% in 2023, it could act as a downward pressure on the national credit rating in the medium term.” If the national credit rating falls, side effects such as a sharp increase in international financing costs and a fall in the value of the won are expected. Myung-bae Yeom, professor emeritus of the Department of Economics at Chungnam National University, pointed out, “If the debt ratio rises, foreign funds may be drained, resulting in side effects like Argentina.”