The Supplementary Budget Is Only a Painkiller

As COVID-19 spreads, economic activity is shrinking. The government has acknowledged the seriousness of the problem and is reviewing economic measures. A proper diagnosis is essential to finding the right solution. But seeing the government abruptly bring up a supplementary budget raises doubts about whether it is accurately diagnosing the state of our economy.

A supplementary budget is merely a stopgap measure, like a painkiller. It is true that, as an emergency prescription, it has a role to play in responding to the current COVID-19 crisis. But we must recognize that the difficulties facing our economy are the result of problems that have built up over a long period and have been worsened by this COVID-19 outbreak. Before talking about a supplementary budget, we need to ask whether the current hardship truly stems solely from the spread of COVID-19.

Some argue that a supplementary budget is needed to rescue small business owners hit by weakening consumer sentiment. But small business owners were already in serious difficulty long before COVID-19 spread in Korea. Rents were high, and the minimum wage had risen to levels that were difficult to bear. Many businesses disappeared from the streets because they could not withstand the pain caused by minimum wage hikes. Most of the small business owners who remain are people barely managing to keep their businesses afloat. Because they were already in a difficult position, the spread of COVID-19 delivered the final blow.

Most of the difficulties now faced by small business owners arose because government regulations and intervention pushed up wages and rents. The government’s various real estate regulations contributed to rising property prices and rising rents, and with rents already high, the increase in the minimum wage made the situation extremely difficult. Institutional constraints such as the 52-hour workweek also made it impossible to respond flexibly to a variety of circumstances, which is another reason small business owners have struggled. In such a situation, even if temporary support is provided through the execution of a supplementary budget, it cannot fundamentally resolve these difficulties.

Some also say a supplementary budget is needed because of weak exports and low growth. But again, the spread of COVID-19 is not the root cause. Conditions had been worsening continuously since 2017. To prevent the growth rate from falling, the government aggressively increased government consumption. In particular, the 2.0% growth rate in 2019 was achieved by boosting government consumption by as much as 7%, even while private consumption and facility investment were weak. Under such circumstances, it is questionable how much executing a supplementary budget would actually help our economy.

An attitude that relies only on a supplementary budget while turning away from solving the underlying problems cannot address the real difficulties of those suffering from this crisis. The reason small business owners have been pushed into an unbearable situation by this crisis, and the reason growth for this quarter is being forecast to turn negative, is that regulation and intervention have been at work throughout.

If we want to revive an economy frozen by excessive intervention and regulation, the first priority must be to remove their causes. Even before confronting COVID-19, our economy was already exhausted by the government’s heavy hand.

A supplementary budget is nothing more than a fever reducer or painkiller. Easing regulations and intervention is what can truly serve as a vaccine for our economy. We must remember that growth occurs and the economy regains vitality when economic activity is energized by the voluntary decisions of the private sector.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 추경예산은 진통제일 뿐

Author: Sung-no Choi

Date: 2020-02-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=22&idx=22427