To support small business owners and self-employed individuals facing closure due to weak private consumption, the government has prepared a supplementary budget that includes a plan for additional expenditure of 20.2 trillion won. Considering the revised revenue estimate of 10.3 trillion won due to expected tax revenue decline, the total scale of this second supplementary budget amounts to 30.5 trillion won.
◇ Payments for national support funds range from 150,000 to 500,000 won based on income
The core of this supplementary budget is the project known as the ‘consumer recovery coupon’ referred to as 'national support funds.' Each individual will receive 250,000 won. For a household of four, this amounts to a total of 1 million won. While the support funds are distributed to all citizens, the payments will be made in stages based on income. The top 10% by income and asset criteria will receive 150,000 won per person, the next income group will receive 400,000 won per person, and basic livelihood recipients will receive 500,000 won per person.
Considering the schedule for processing the supplementary budget by the National Assembly, the support funds are expected to be distributed to households as early as next month. Recipients can choose to receive the funds via local love gift certificates (local currency), prepaid cards, or credit/debit cards. The total cost associated with distributing the national support funds is estimated at 13.2 trillion won. Of this, 10.3 trillion won will be covered by the central government, while the remaining 2.9 trillion won will be funded by local governments.
The plan to support 'local currency issuance costs,' which was excluded from the government proposal during the first supplementary budget but added during discussions in the National Assembly, has now been incorporated from the outset. During the first supplementary budget, the government allocated 400 billion won from the national treasury for the issuance of 9 trillion won worth of local currency. This time, 600 billion won will be invested from the central treasury to issue 8 trillion won worth of local currency. Although the financial input has increased, the scale of issuance has decreased because the government support rate has been raised.
A program that refunds 10% of the purchase cost (up to 300,000 won) for high-efficiency appliances will also be restarted. There are expectations that this will boost private consumption while alleviating concerns about inventory accumulation in the appliance industry due to U.S. tariff measures.
◇ Providing construction work through repairs and renovations of SOC and public facilities
A total of 2.7 trillion won will be invested in projects aimed at reviving the stagnant construction industry, which is cited as a core reason for domestic demand weakness. Initially, 1.4 trillion won will be invested in early investments in major social overhead capital (SOC) such as railways and ports to provide work for the construction industry. An additional 500 billion won will be allocated for renovating public facilities such as universities and military facilities.
A phase three support plan for project financing (PF) is also included in the supplementary budget. Financial support will be provided to business sites experiencing difficulties in securing funding through special guarantees (2 billion won) and government capital real estate investment trusts (3 billion won). To help local construction companies overcome liquidity crises, the government will pursue the repurchase of 10,000 unsold dwellings before completion by 2028 under repurchase conditions. This means purchasing at 50% of the selling price and selling at a price that adds interest costs to the purchase price after completion.
A ‘special debt adjustment package’ aimed at alleviating the debt burden of small business owners accumulated during the high-interest period has also been included in the supplementary budget.
Initially, long-term overdue debts totaling an estimated 16 trillion won for those over seven years and under 50 million won will be collectively purchased and then disposed of after review. Support will also be expanded to include low-income small borrowers who qualify for a 90% principal reduction under the fresh start fund. Small business owners diligently repaying policy funds yet facing management crises will be given options for partitioning repayments and interest reductions.
◇ Likely tax revenue shortfall again this year… Revised revenue estimate of 10 trillion won
The revised revenue estimate reflecting revenue reduction was also enacted in this supplementary budget. The scale of the revised revenue estimate is 10.3 trillion won. This adjustment is based on the expectation that tax revenue this year will be significantly lower than anticipated when the previous year's budget was prepared, necessitating a reassessment and adjustment of revenue.
For each tax item, corporate tax is expected to bring in 4.7 trillion won, value-added taxes are expected to bring in 4.3 trillion won, and the fuel tax and others are expected to collect 2.3 trillion won less than projected during the preparation of the previous year’s budget. However, the inheritance and gift tax is anticipated to increase by 900 billion won compared to the initial budget estimate.
Park Geum-cheol, director of the Ministry of Economy and Finance's Tax Policy Division, noted, “Corporate taxes were based on last year's performance received in April, which were lower than expected. We reflected these aspects.” He added, “Due to various uncertainties, value-added taxes did not perform well in private consumption. We adjusted this down by 4.3 trillion won.”
◇ Additional issuance of 20 trillion won in government bonds… National debt surpasses 1,300 trillion won
The resources for the supplementary budget will be secured through the additional issuance of government bonds and expenditure restructuring. The additional issuance of government bonds will amount to 19.8 trillion won, resulting in the national government debt exceeding 1,300 trillion won (from 1,280.8 trillion won to 1,306 trillion won). The ratio of government debt to gross domestic product (GDP) will rise by 0.6 percentage points to 49.0%.
Expenditure restructuring has been conducted to amount to 5.3 trillion won. Among the targets for expenditure restructuring, educational grants will be reduced by 2 trillion won. Additionally, adjustments totaling 3.3 trillion won have been made to government projects including the Gadeokdo New Airport project, the UN contributions, and support for eco-friendly cars and electric vehicles.
Additionally, 2.5 trillion won from available fund resources and 3 trillion won from adjustments of foreign exchange bonds will be utilized as supplementary budget resources. Yoo Byeong-seo, head of the Ministry of Economy and Finance’s Budget Division, stated, “In the past, when there was inadequate tax revenue, it was common to take excess funds from the funds and use them for other expenditures. This time, we utilized excess funds for portions that required it.”