Disaster Relief Fund, Ineffective for Businesses Hit Hard by COVID-19

[경향신문]

The tourism and fitness industries were particularly hit hard by COVID-19, but it turned out that people mostly spent the disaster relief fund at supermarkets, which suffered relatively less. Financial authorities argued that it was inevitable for the government to selectively hand out the fourth disaster relief fund, due to the disparity between businesses that suffered from COVID-19 and those that benefited from the disaster relief fund.

On February 5, the Korean Economic Association organized the 2021 Economics Symposium. During the symposium, Kim Mi-ru, a researcher at the Korea Development Institute said, “The tourism industry and saunas, which suffered the most due to COVID-19, continued to see their sales decline despite the distribution of the disaster relief fund, whereas supermarkets, which suffered relatively less, saw sales increase.” According to the report by Kim, “The Effects and Implications of the First Emergency Disaster Relief Fund Policy,” credit card transactions from February 24 until April 12 last year, which was before the first disaster relief fund payout, fell the steepest in the tourism industry (-72.9%) But the tourism industry ranked 24th among the 25 industries where people spent the disaster relief fund. Gyms (-48.4%) and saunas and jjimjilbang (-47.5%) followed the tourism industry in the biggest drop in sales, but they only ranked 20th and 25th respectively among the businesses that benefited from the disaster relief fund.

People spent most of their disaster relief fund at supermarkets, Korean restaurants and hospitals. Yet supermarkets had already enjoyed a 3.4% year-on-year increase in sales even before the government’s cash payout. As of the second quarter last year, the percentage of business closures was high among singing rooms and golf courses, but the rate actually fell for pharmacies and optical shops. This is why economic policy authorities, who had been relatively flexible on major issues, as well as the budget office, conservative on financial issues, are clearly showing a negative response to a universal cash payout. An official from the finance ministry said, “Even if it undermines our fiscal soundness, if it is effective, we could consider a disaster relief fund for all people. But compared to the fiscal resources we are injecting, the effect is not so significant.”

The Ministry of Economy and Finance does not expect a universal cash payout to be effective in stimulating the economy. To maximize the stimulation of consumption, various policies to encourage domestic spending, such as a lower individual consumption tax and the Korea Sale Festa, have to be implemented simultaneously, but that is not possible with the COVID-19 outbreak still ongoing. The finance ministry believes that if the government simply hands out the disaster relief fund to all citizens, it could be even less effective than before, due to the strains from disease prevention and distancing.

Some experts agree to the selective distribution of the disaster relief fund but argue that the financial authorities need to provide more assistance to those damaged by COVID-19. Oh Geon-ho, head of My Welfare State said, “It is necessary to provide aid in proportion to the damage instead of just providing 1-3 million won for each storeowner.” Kim Mi-ru also pointed out, “The government should consider its fiscal capability, but it also needs to provide more support to some businesses that have suffered from accumulated damages due to the extended social distancing.”

Meanwhile, the finance ministry failed to present a clear position on measures to strengthen selective support.

The ministry official said, “Aid could be concentrated on businesses that suffered a larger decrease in sales,” and added, “Since resources are limited, we are seeking various measures.” Improvements to resolve the blind spots that could occur due to selective support are also cited as a major task for the government. Oh said, “The government needs to present measures on how it will support those whose damages cannot be calculated with existing income data, such as care workers.”