South Korea adds 20.2 trillion won to budget and will issue consumer vouchers to stimulate economy
South Korea’s Ministry of Finance announced on the 19th that the State Council meeting chaired by President Lee Jae-myung passed a fiscal expenditure budget of 20.2 trillion won (about 14.83 billion U.S. dollars), which will revitalize domestic consumption through the issuance of consumer vouchers and other means to achieve the goal of stimulating the economy.
Yonhap News Agency pointed out that this is South Korea’s second additional budget this year and the first additional budget since Lee Jae-myung took office. South Korea passed a 13.8 trillion won additional budget in May, which still needs to be approved by the National Assembly. The South Korean Ministry of Strategy and Finance said in a statement that “the government will support economic recovery by promoting consumption, encouraging investment and expanding construction spending.” Due to the sluggish economic performance, South Korea’s economy has been close to zero growth for four consecutive quarters.
The ministry said that in order to stimulate private consumption, the government will inject 10.3 trillion won and issue “consumption vouchers” ranging from 100,000 to 500,000 won (about 73 yuan to 367 US dollars) to each person based on income level.
“We carefully studied the needs of the salaried class and small business employers and identified feasible projects, with the focus on practicality,” said Lim Ki-geun, second minister of the Ministry of Strategy and Finance.
In addition, the South Korean government also plans to allocate 1 trillion won to issue discount vouchers worth 8 trillion won, bringing the total amount of discount vouchers issued this year to a record 29 trillion won. The latest government subsidy will increase the discount rate from the previous 7% to 10% to 15%, the Ministry of Strategy and Finance said. The vouchers will be circulated in small retailers and traditional markets to stimulate consumption and help small business owners.
In order to reduce the debt burden accumulated by long-term high interest rates, the government plans to allocate 1.4 trillion won to implement a debt relief plan to benefit 1.07 million people. Applicable to unsecured personal debts with arrears of more than 7 years and an amount of less than 50 million won, including self-employed persons.
As for borrowers who are judged to be unable to repay, the relevant debts will be cancelled; if the repayment ability is significantly lower than the outstanding amount, up to 80% of the principal and 10-year installment repayments will be waived through debt restructuring. South Korea has injected 5.4 trillion won in liquidity to address continued weakness in construction investment, of which 3 trillion won is to provide financial support to construction companies in financial difficulties.
Yonhap News Agency said the bailout plan aims to alleviate persistent inflation and long-term low consumer confidence, especially among low-income households. However, with the national debt rising, the latest supplementary budget may cause South Korea to have a tax shortage for three consecutive years. Last year, South Korea’s fiscal deficit exceeded 100 trillion won (about 73.4 billion US dollars).
