[이코노미스트] Reasons for controversy over equity in ‘4th Disaster Subsidy Payment’

Blind spots arise from speeding up… Some argue that’Let’s use income data instead of sales’

“We paid special attention to minimizing blind spots while supporting the victims in a thick and wide range.”

This is the principle of payment of the 4th disaster support fund, emphasized by President Moon Jae-in. The Ministry of SMEs and Startups, which announced the support guidelines, said in the same tone. “The budget has been formulated so that the victims can receive thicker and more dense support than the existing support fund (third disaster support fund).” The 4th disaster support fund differs from the scale. The budget for self-employed people is 6.73 trillion won, which is more than the third disaster support fund (4.1 trillion won).

The selection criterion for the payment of this support fund is’Sales’. Small businesses with annual sales of 1 billion won or less, as well as companies that have been banned from collectively and restricted operations, can receive subsidies, all of which should decrease their sales in 2020 compared to 2019 (based on VAT sales reported by the National Tax Service). The 10 industries whose average sales in 2020 decreased by more than 20% compared to 2019 are specifically classified as’management supervisory business types’ and receive 2 million won.

As a countermeasure against quarantine, it is not only to support businesses that are closed at all or have limited business, but it is a strategy that it will take a breath away from businesses that have not been able to do business properly due to the ban on meetings of five or more people. At first glance, the government’s explanation that’it has become thicker and more dense’ seems to be correct. In fact, there were 2.8 million small businessmen who received the third disaster support fund, but this time it has increased by more than 1 million to 3.85 million.

Nevertheless, complaints from the self-employed sector are ongoing. Although screening support is not a way to satisfy everyone in the first place, it is difficult to treat the complaints of the field as just cheeks. Above all, the logic of criticism toward the’reduction in sales’ criterion is clear.

Seong-won Lee, Secretary General of the Federation of Small and Medium Business Owners of Korea, said, “It is difficult to say that the reduction in sales is proportional to the actual level of damage because operating expenses vary widely by industry. As it is, the 4th disaster subsidy is also highly likely to be unable to calm the controversy over equity and dead zones,” he pointed out.

It is argued that sales are difficult to see as a management indicator to gauge the crisis in the self-employed world. This is because of various’operating expenses’ that you have to spend the same whether your sales are good or bad. For example, the ratio of fixed costs such as rent, labor, and management costs to each industry varies. These costs are an important factor in determining the actual income of self-employed people, and sales figures do not reveal these variables. Let’s take a closer look at the problem of the principle of’reduction in sales’ through examples of subsidies paid by two self-employed persons.

Jang Hyun-young (pseudonym, 54), who has been running a restaurant for 10 years in an office-dense area in Guro-gu, Seoul, has completely changed his sales strategy last year. Until now, it has been conducting business focused on the hall business for office workers, but due to the damage caused by Corona 19, it gave up the hall business and transformed into a’delivery restaurant’. As the time of the spread of Corona 19 coincided with the end of the lease contract, the store area was drastically reduced and the number of employees was minimized.

As a result, although the volume of sales decreased compared to the previous year, it was able to raise the operating margin. Jang is highly likely to be a beneficiary of the 4th disaster support fund. Jang said, “The situation is better than before the coronavirus when it comes to the income held in the hands of the delivery business.” “It is good to give subsidies. “I confessed.

There is also the opposite case. Kim Jong-gu (pseudonym, 34), who runs an editing shop in the Incheon area, saw last year’s sales increase compared to 2019. This is thanks to the sales of products with a negative margin structure throughout the year with a focus on normalizing sales. It was a hurdle to reduce the burden and increase sales. On the other hand, the operating profit of the editorial shop turned to negative as the burden of fixed costs such as rental and labor costs did not decrease. However, there is a high possibility that Mr. Kim will not be included in this subsidy. Anyway, this is because sales increased compared to the previous year.

If this calculation is followed, it can lead to side effects that benefit the self-employed, who are relatively well-off. It is explained that although the extent of the decrease in sales may not have any correlation with the damage to the self-employed sector, it is not a number that fully reveals the damage.

As an alternative, it is argued that’Let’s use income data instead of sales’. Income is the money that self-employed people actually collect after subtracting fixed expenses such as rent from sales, so it is an index close to’net profit’ in terms of companies. The problem is that the government has not yet obtained income data for 2020. The time for self-employed persons to report their comprehensive income tax in 2020 is in May this year, but if the data are collected, support is not possible during the first half of the year.

On the other hand, the self-employed sales data is already in place. This is because the declaration of VAT, which is a consumption tax on sales, was completed in February. An official from the National Assembly said, “Even when the 2nd and 3rd disaster subsidies were sprayed, based on the card data secured by the National Tax Service, the’revenue reduction’ was questioned, but the noise was not too much.” The reason for this was that the Ministry of Strategy and Finance emphasized the promptness of support.”

However, this type of support is far from the’thick and dense support’ emphasized by President Moon Jae-in and the Ministry of SMEs. This is because, for’quick payment’, the group who desperately needs subsidies more than anyone else and gave up selective support in proportion to the actual damage. The total amount of subsidies selectively provided by the government to self-employed persons is 14.13 trillion won (2nd 3.200 trillion won + 3rd 4.100 trillion won + 4th 6.73 5 trillion won). It is a failed policy that the same controversy and dissatisfaction are repeated in three screening payments with enormous resources.

It’s for speed and you don’t have to give up elaborate support. Since we have secured 2020 sales data according to the VAT report, we can estimate the amount of damage actually suffered by the self-employed business by considering only the’cost variable’.

Lee Dong-ju’s office of the Democratic Party, along with the income tax report data in 2019 and the 2020 sales data by industry, collected by Korea Credit Data, selected the income of the self-employed in the business of collective restrictions and business bans in 2020. After calculating the operating expenses for each business type from the 2019 income tax return data, it was substituted into the sales for 2020 by business type. Lee’s office calculated an industry income estimate for 2020 by subtracting 90% of operating expenses in 2019 from sales in 2020 (taking into account reductions in operating expenses such as “good landlord movement” and “shortening business hours”). And again, this was compared to the income in 2019. As a result, the increase and decrease in sales compared to the previous year by industry was -12 to -18%, but the increase or decrease in income was -28 to -120%. This is a proof that the gap between sales and income in the self-employed world is so wide.

Yang Joon-ho, a professor at Incheon University (economics), said, “It is unclear whether support in the same way as now will lead to overcoming Corona 19. He said, “It’s time to examine in principle how helpful it is to the self-employed victims,” ​​he said.

-Reporter Darin Kim [email protected]