The government has begun full-scale implementation of the 26.2 trillion won supplementary budget designed to address the economic crisis triggered by the Middle East conflict. Starting April 27, the government will provide high oil price relief payments to vulnerable groups, followed by support of 100,000 won per person in the Seoul metropolitan area and 150,000 won in non-metropolitan regions for 70 percent of the population beginning May 18. The total disbursement will reach 6.1 trillion won, comprising 4.8 trillion won from central government funds and 1.3 trillion won from local government coffers.
Although this supplementary budget is funded by excess tax revenue, the fiscal burden cannot be dismissed. This approach effectively diverts resources that should first be used to repay national debt, breaking an established principle. Last year, national debt increased by 129 trillion won to 1,304 trillion won, while the fiscal deficit reached 104 trillion won. These figures demonstrate that the nation's finances are far from comfortable. The expanded fiscal spending must be managed through restructuring mandatory expenditures and reforming the local education finance grant system. The 4.8 trillion won in local education finance grants included in this supplementary budget also warrants scrutiny regarding whether it truly serves crisis response purposes. According to the National Assembly Budget Office, countries such as Canada, Finland, and the United Kingdom absorb the burden on citizens from external shocks by lowering taxes instead.
Concerns that the supplementary budget implementation could fuel inflation must not be overlooked. Support for low-income households does contribute to boosting consumption and increasing sales for small business owners. However, injecting liquidity during a period of high inflation is highly likely to trigger "coupon-flation." The Organisation for Economic Co-operation and Development raised its forecast for Korea's consumer price inflation this year to 2.7 percent while lowering the growth projection to 1.7 percent. Warning signs of stagflation—slowing growth amid high inflation—are growing louder.
It is concerning that politicians are already floating the idea of a second supplementary budget. While this is framed as preparation for a prolonged Middle East conflict, additional government bond issuance would be inevitable. The national debt-to-GDP ratio has already risen to 49 percent following two supplementary budgets last year. Some forecasts project it will exceed 60 percent by 2030. Supplementary budgets are meant to be exceptional measures. They should be limited to crisis response and must not be used as political tools. We must recognize that the burden of fiscal addiction will ultimately be passed on as debt to young people who are already struggling.
