🚨 Universal 250,000 Won Payment Controversy: Economic Stimulus Effect Questioned Amid Tax Revenue Shortage

Today Korean Economic News | 2025.06.13

📌 12 Trillion Won Cash Payment Plan Raises Questions About Budget Health and Effectiveness

💬 The government's plan to give 250,000 won to all citizens to boost the economy is facing strong criticism from finance experts. This cash payment program, worth 12 trillion won total, is causing concerns about budget health due to recent tax revenue shortages. Government research institutes like the Korea Development Institute (KDI) and Korea Institute of Public Finance criticize the policy, saying "cash payments have limited economic boost effects and only waste budget resources." Experts suggest selective support for low-income families or productive infrastructure investment as better alternatives.

1️⃣ Easy to Understand

The government is planning to give 250,000 won to every citizen, but there's heated debate about whether this will actually help the economy. People are questioning whether it's right to spend 12 trillion won when the government is already short on money.

First, let's look at how big 250,000 won per person really is. South Korea has about 51 million people, so giving 250,000 won to everyone would cost about 12.75 trillion won total. This equals about 2% of the government's 2025 budget of 670 trillion won - quite a large amount.

The government wants this policy because the economy is struggling. High prices and interest rates are making life difficult for people, and when people spend less money, the whole economy gets weaker. The government's idea is to give people cash so they'll spend more and help the economy recover.

But experts oppose this policy for several reasons. First, the money's effect would be limited. Even if people get 250,000 won, with current high prices, it would probably just help with living costs rather than create new spending. People might save the money or use it to replace spending they were already planning to do.

Second, the government's finances are already in trouble. Tax income has been falling short recently, so spending another 12 trillion won would put more pressure on the national budget. Later, the government might need to raise taxes or cut other important programs to make up for this spending.

Third, there might be better ways to help. Instead of giving the same amount to everyone, it might be better to give more help to people who really need it, or to invest in job creation and strengthening the economic foundation rather than one-time cash payments.

This controversy shows the difficult choices that always come with economic policy. The government must balance helping people's immediate problems with strengthening the economy's long-term health.

Whether this policy will actually happen and whether it will work remains to be seen, but this is a time when we need serious thinking about how the government should spend public money.

2️⃣ Economic Terms

📕 Budget Health

Budget health means the government manages income and spending in a balanced way without increasing debt.

• It's measured by the balance between tax income and spending, and the national debt ratio.
• When budget health gets worse, it can lead to lower national credit ratings and higher interest rates.
• Finding the right balance between spending to boost the economy and maintaining budget health is important.

📕 Economic Stimulus Effect

Economic stimulus effect means the positive impact of government policies on economic growth and job creation.

• The economy can be boosted through cash payments, tax cuts, public investment, and other methods.
• Multiplier effect: When the government invests 1 won and the total effect on the economy is greater than 1 won.
• If cash payments lead to savings instead of spending, the multiplier effect can be limited.

📕 Tax Revenue Shortage

Tax revenue shortage happens when the government collects less tax money than expected.

• Main causes include economic recession, poor business performance, and decreased property transactions.
• In 2024, Korea's tax revenue was about 40 trillion won less than expected.
• Tax revenue shortages limit government financial operations and increase the need to issue more government bonds.

📕 Selective Support

Selective support means providing help only to people who meet specific conditions.

• Support targets are selected based on income level, age, region, and other criteria.
• It's more financially efficient than universal support and has greater income redistribution effects.
• However, it costs more to administer and can cause controversy during the selection process.

3️⃣ Principles and Economic Outlook

✅ Economic Analysis of Cash Payment Policy

• Let's analyze the theoretical basis and actual effects of the universal cash payment policy from an economic perspective.

  • First, cash payment policy is based on Keynesian economics' demand stimulation theory. During economic downturns, consumption and investment decrease, leading to insufficient total demand. When the government gives cash, household disposable income increases, consumption rises, and this leads to increased production and employment, helping the economy recover. Especially for low-income groups facing 'liquidity constraints,' cash payments are expected to have large economic stimulus effects because they spend almost all the money they receive. The cash payments during COVID-19 in the United States were based on this logic.

  • Second, in reality, the effects can be limited due to various factors. The biggest problem is the 'crowding out effect.' If the government issues bonds to fund cash payments, interest rates might rise, which could reduce private investment. Also, according to 'Ricardian equivalence,' rational consumers might save the money they receive because they expect current cash payments to lead to future tax increases. During the first disaster relief payment in 2020, the consumption increase effect was only about 40% of the payment amount. The remaining 60% was saved or used to pay off debt.

  • Third, the effects are likely to be even more limited in Korea's current economic situation. Due to high prices and interest rates, households are showing conservative spending patterns, so 250,000 won in cash payments might not be enough to encourage new consumption. Especially for middle-class and higher-income groups, it would probably just help with living costs. According to analysis by the Korea Institute of Public Finance, in the current economic situation, the GDP increase effect of cash payments is estimated to be 0.3-0.5 times the payment amount. This means even if 12 trillion won is paid out, GDP would only increase by 4-6 trillion won.

• While cash payment policy is theoretically effective, in reality its effects can vary greatly depending on economic conditions and policy design. In Korea's current situation, the effects appear likely to be limited.

✅ Budget Conditions and Policy Priorities

• Let's evaluate whether cash payment policy is appropriate considering Korea's current budget situation and policy priorities.

  • First, budget pressure is intensifying due to tax revenue shortages. Tax revenue in 2024 was 40 trillion won less than expected, and the shortage is expected to exceed 20 trillion won in 2025 as well. Main causes include decreased capital gains tax and acquisition tax due to reduced property transactions, and decreased corporate tax due to poor business performance. In this situation, spending an additional 12 trillion won would inevitably expand the budget deficit further. Korea's national debt ratio is currently about 54% of GDP, which is still safe, but with rapid aging and low birth rates expected to dramatically increase future budget burdens, using budget resources carelessly could be dangerous.

  • Second, we must consider priorities compared to other policy needs. Looking at the challenges Korea currently faces, there are many areas requiring large long-term budgets, such as responding to low birth rates and aging, carbon-neutral transition, digital innovation, and strengthening social safety nets. Especially, expanding childcare and education infrastructure and supporting youth housing to solve the low birth rate problem are urgent tasks. With 12 trillion won, we could build 1,000 public childcare facilities or provide 100,000 public rental housing units for young people. Unlike one-time cash payments, these investments have long-term effects of strengthening economic growth foundations.

  • Third, careful consideration of fiscal policy sustainability is needed. Once cash payments start, people are likely to keep demanding they continue. But given budget conditions, continuous cash payments would clearly be difficult. This could cause problems with policy consistency and credibility. Even fiscally healthy countries like Germany and Sweden avoid universal cash payments except in special situations like COVID-19. Instead, these countries improve public welfare through investments in public goods like education, healthcare, and infrastructure.

• Fiscal policy should consider long-term sustainability rather than short-term effects. Given Korea's current budget conditions, it seems better to prioritize investments that build future growth foundations rather than one-time cash payments.

✅ Alternative Policy Options and Their Effectiveness

• Let's compare and analyze the effectiveness of various alternative policy options suggested instead of cash payment policy.

  • First, selective support policy could be more effective. Instead of giving 12 trillion won equally to all citizens, supporting the bottom 50% with 500,000 won each would cost about 6 trillion won but achieve the same effect. Because low-income groups have higher marginal propensity to consume, the economic stimulus effect would be greater. Also, the remaining 6 trillion won could be used for other policies, improving fiscal efficiency. The 'Win-Win Consumption Support Fund' implemented in 2022 was given only to the bottom 88% by income and was evaluated as more effective than universal payments. However, there are drawbacks like administrative costs for income verification and payment processes, and potential fairness controversies near the cutoff line.

  • Second, productive spending through supply chain investment is more effective in the medium to long term. While cash payments only stimulate the economy from the demand side, infrastructure investment and R&D support expand supply capacity and increase economic productivity. Using 12 trillion won to build high-speed rail or digital infrastructure would create jobs while establishing long-term economic growth foundations. Good examples include America's New Deal policies and Germany's Industry 4.0 policy. Especially, investments aligned with global trends like carbon neutrality and digital transformation help secure future competitiveness. The Korea Development Institute analyzes that infrastructure investment's multiplier effect is 2-3 times higher than cash payments.

  • Third, structural approaches through tax policy can also be considered. This means reducing income tax or consumption tax for a certain period instead of one-time cash payments. This gives more benefits to working people, increasing work incentives and continuously stimulating consumption. Also, unlike cash payments, it takes the form of reduced tax revenue rather than fiscal spending, which can distribute the budget burden. However, tax changes take time, and benefits might go more to high-income groups. Japan introduced a consumption point system for low-income groups when raising consumption tax in 2019 to minimize side effects.

• Effective economic stimulus policy should not simply distribute money, but should be designed to improve economic structure and foster future growth engines. In the current situation, a combination of selective support and productive investment seems most desirable.

4️⃣ In Conclusion

The controversy over the universal 250,000 won payment policy clearly shows the dilemma facing the Korean economy. It's a question of what choice to make between short-term economic stimulus and long-term budget health, and policy efficiency.

The currently proposed policy started with good intentions to ease people's immediate difficulties, but it appears to have limitations from several perspectives. Compared to the large fiscal input of 12 trillion won, the economic stimulus effect is likely to be limited, and there are concerns it could worsen already difficult budget conditions.

Most importantly, considering the fundamental challenges Korea currently faces, investment for the future seems more urgent than one-time cash payments. To respond to structural changes like low birth rates and aging, climate change, and digital transformation, continuous investment in education, infrastructure, and technological innovation is needed.

If we really want to ease people's difficulties, it would be more effective to give more support to people who really need it rather than giving the same amount to everyone. And with the remaining resources, we should focus on investments that increase jobs and strengthen the economic foundation.

Politically, distributing cash to people might be popular, but true political leadership means making the right decisions for the country and people from a long-term perspective. Especially fiscal policy requires more caution because wrong decisions can have long-lasting consequences.

Ultimately, this controversy poses an important question to us: How should government money be spent to best help both citizens and the country? Finding a wise answer to this question is the task currently given to us.