Growing controversy on disaster relief funds

There is increasing controversy over the fairness of the fourth round of the disaster support fund, which will be paid out by the government starting on March 29. Such controversy is not new, however, as the fourth round of support was determined without specific standards on who will receive the funds, which was repeated in the second and third rounds.

The relief funds will be paid out to businesses that have been impacted by the government’s administrative order to ban gatherings, self-employed and small businesses that can prove their damage from the ban such as reduced sales. The highest amount of the fund per person has been increased from three to five million. With sales as the basis to determine fund payout, self-employed businesses that started their business in the second half of 2019 and generated annual sales for the first time last year would be excluded, triggering controversy on fairness.

“I barely managed to generate slightly more sales than last year, after working tirelessly to open my store and despite loss,” complain many others. Some criticize the policy to pay out equal amounts of funds to those who have been heavily impacted and those relatively less. Some 264,000 travel and art performance business owners, who will receive 2 million won only when they can prove that their sales have declined by more than 20%, also complain of unfairness as they will receive less than Karaoke owners (who will get 5 million won) and academic institutions (4 million won) even though their business had practically shutdown.

Government officials have their own woes as well. They know that a comprehensive review of income and tax payment history would be more effective, beneficial and fairer, but they could not keep up pace with the ruling Democratic Party of Korea’s abrupt decision to pay out 19.5 trillion won in just two months. However, the government is responsible for the inequality of the funds as well. Last year, the Ministry of Economy and Finance accepted the ruling party’s demands to increase the threshold of simple taxpayers based on VAT laws from 48 million won to 80 million won. The measure was aimed to lift tax burdens of small businesses, but created an additional 230,000 simple taxpayers lacking in tax transparency. This means that it would be difficult to leverage taxpayer history of small businesses as basis for compensation.

It is still yet unclear when COVID-19 will end, but this is not likely to be the last round of disaster relief funds. With the Democratic Party of Korea continuing to promise legalization of financial loss for the self-employed and small business owners, the controversy on fairness will inevitably carry on. The government needs to act quickly to increase tax transparency of the self-employed and build a system capable of accurately checking changes in income and sales.