[Free Speech] Disaster Relief with Limited Funds Must Be Targeted and Focused

The National Assembly, through bipartisan agreement, decided to provide the 5th emergency disaster relief payment of 250,000 won to the bottom 88% of the population. In effect, this means it will be paid to the vast majority of citizens, excluding only around 10%. Those who argued for expanding the payments as much as possible have high expectations for the policy—namely, that distributing relief funds will stimulate consumption and revitalize the economy. However, this kind of disaster relief payment is highly likely to achieve neither equity nor effectiveness.

At a time when the entire nation is going through hardship, the argument for providing disaster relief payments to most citizens may sound appealing. The expectation that it will boost consumption may also sound plausible to small business owners. However, if we are to overcome this difficult period together and think seriously about post-COVID Korea, the political sphere must face reality and concentrate the limited budget where it is truly needed. Disaster relief payments, too, require selection and concentration.

In the case of the first disaster relief payment, which was distributed to the entire population, it can be confirmed that its economic stimulus effect was minimal. According to data from the National Assembly Budget Office, the total amount of the 1st emergency disaster relief payment was 17.3418 trillion won, while the value-added output generated by it was 8.5223 trillion won. That is less than half of the amount injected. Even when reflecting expenditure restructuring and the substitution effect in consumer spending, the value-added inducement coefficient was only 60–80% of the input amount, meaning the effect still did not match the amount spent.

This is an entirely natural result. As failures in the COVID response and economic policy continued, economic conditions worsened. Most residents who received the support used the time-limited funds for substitute consumption. In other words, they used the disaster relief payment for essential spending while saving the money they originally had to repay debt or increase savings. The first disaster relief payment, which was distributed to the vast majority of the population, had inherent limits that prevented it from functioning as a driver of domestic demand. In that sense, it was a failed policy that did not achieve effectiveness.

Considering these points, the decision to provide payments to the bottom 88% is likely to produce even worse results, as it achieves neither effectiveness nor equity. That is because it has divided the public by setting the criterion of the “bottom 88%,” a standard with unclear justification. If the goal is not to improve effectiveness by concentrating support on those in hardship, then equity would require paying everyone. Unlike the first disaster relief payment, which at least met a basic standard of equity, the 5th disaster relief payment is not only ineffective but also based on a criterion that fails the test of fairness, thereby only undermining social integration.

This policy approach of dividing the public with payment criteria whose basis is unclear must be stopped. Rather than using arbitrary standards that divide the people, the government should establish standards the public can reasonably accept. In short, the 5th disaster relief payment to the bottom 88% is neither effective nor equitable. There is a need to clarify the purpose and direction of disaster relief payments.

The purpose of disaster relief payments is not economic stimulus, but helping citizens in difficulty during a disaster endure this hard period. Policymakers must realistically accept that the effect of such payments in boosting domestic demand is minimal and revise the direction of the policy accordingly. Financial resources are limited. These limited resources must be concentrated on the lower-income groups that have suffered the most from COVID and on business owners whose operational continuity is at risk, so that we can overcome this difficult period.

Yoonsun Pyo, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 재원 한정된 재난지원금 선택과 집중을

Author: Yoon-sun Pyo

Date: 2021-08-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=10&idx=24149