[Op-Ed] Cash Handouts Fuel Inflation, Responsible Policy Action Needed

At a time of excessive liquidity and persistent high inflation, cash handouts are a policy contradiction that undermines price stability / Cash disbursements increase the money supply, entrench upward pressure on prices, and push up the cost of living even further / What is needed is “selection and concentration” — concentrating resources on the extremely poor and small self-employed business owners whose livelihoods are under threat / The fuel tax structure should be operated flexibly in line with market conditions, and an institutional safety net should be built to ease price volatility

The government has announced that, in the name of stabilizing prices, it will provide “high oil price damage relief payments” to the bottom 70% by income. However, rather than addressing the external shock of high oil prices through policy, this is closer to a stopgap approach aimed at soothing immediate public opinion through fiscal spending. In particular, supplying trillions of won in cash again at a time when market liquidity is overflowing and high inflation persists merely creates a policy contradiction that undermines the national goal of price stability.

Although this relief payment is presented as a measure to support people’s livelihoods, a closer look makes it difficult to avoid the criticism that it is less a policy solution than a form of “vote-buying administration” mindful of approval ratings. Attempting to offset the pain inflicted on ordinary people by instability in external supply chains through large-scale cash handouts creates the side effect of making economic actors rely on the government’s patronizing fiscal support rather than proactively adapting to a changed environment. As a result, this weakens our economy’s ability to overcome crises.

The most troubling point is its direct clash with the current macroeconomic stance. The Korean economy is now passing through a grave period in which tight fiscal management and interest rate policy are required to contain inflation. Under such circumstances, releasing trillions of won in liquidity again is like pouring oil on a fire. Government cash disbursements increase the amount of money circulating in the market, entrench upward pressure on prices, and will ultimately boomerang by driving up the cost of living that ordinary people actually feel.

The government claims that these payments will be financed with excess tax revenue, seeking to sidestep controversy over fiscal soundness. But regardless of where the tax revenue comes from, a large pool of cash released into the market is itself a core factor causing inflation. If excess tax revenue has arisen, the way to minimize the opportunity cost of public finances is not to exhaust it on temporary consumption-oriented support, but to use it for debt repayment to stabilize the value of the currency or to establish fiscal rules for future generations.

In addition, setting such a broad target as 70% creates inefficiency by dispersing resources that should go to the energy-vulnerable groups who truly need robust protection. This follows the same trajectory as the “universal livelihood recovery payments” approach that was controversial in political circles in the past, and it raises issues of fairness in fiscal execution. Genuine livelihood support should begin not with handing out cash to the entire public, but with “selection and concentration” — focusing resources on the extremely poor and small self-employed business owners whose livelihoods are threatened by high oil prices.

In a modern economy, the government’s role is not to scatter fiscal resources to temporarily mask a crisis, but to create a stable environment so that the market system can withstand external shocks. Direct cash payments may act as an anesthetic that makes people forget the immediate pain, but they cannot cure the underlying illness of high oil prices. Rather, the more expectations of government support spread, the more private-sector technological innovation and improvements in energy consumption structures are bound to be delayed.

As an alternative, the government should work to build an institutional safety net that mitigates price volatility by operating the fuel tax structure flexibly in line with market conditions. This is a market-friendly approach that can absorb the shock of sharp oil price increases without artificial fiscal injections. At the same time, for low-income households, the government should strengthen concrete in-kind support such as “energy vouchers” instead of cash, thereby preventing funds from being used for purposes unrelated to the support’s intent and increasing the effectiveness of relief.

When the government resists the temptation of vote-winning policies and restores the proper role of public finance, our economy will be able to move beyond the fierce waves of high oil prices toward a more robust and sustainable structure. What is needed now is not a stopgap for approval ratings, but a responsible policy decision that looks ahead to the nation’s long-term economic future.

Minji Song, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] '현금 지원' 인플레이션 자극, 책임 있는 정책적 결단 필요

Author: Min-ji Song

Date: 2026-05-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=1&idx=28977