The Pros and Cons of the Onnuri Gift Certificate

A massive amount of taxpayer money is being poured into the Onnuri Gift Certificate program. The budget for issuing Onnuri Gift Certificates, expanded in the name of boosting sales at traditional markets, is enormous, reaching KRW 5.5 trillion as of 2024. According to the 2023 fiscal settlement, about KRW 1 trillion in state funds was used for the issuance and operation of gift certificates, and roughly half of that budget was spent on Onnuri Gift Certificates.

It is questionable whether Onnuri Gift Certificates, funded by taxpayers, actually help our economy. The market share of traditional markets, their primary place of use, declines every year. Compared with e-commerce platforms, they are less competitive in every respect, including product variety and quality as well as delivery speed, and the consumer utility of Onnuri Gift Certificates continues to fall further behind.

The hidden costs are also substantial. The administrative costs involved in issuing and managing Onnuri Gift Certificates are enormous. More than about KRW 1 trillion in state funds goes into operating expenses alone, and about half of that is effectively administrative spending related to the management and operation of the gift certificates. The costs of issuance and distribution, staff wages, and system maintenance have become bloated.

Cases of fraudulent use are also frequent. Some merchants repeatedly attempt to convert the gift certificates into cash by selling them at a discount, and the cost of building and maintaining systems to prevent this continues to rise. The budget being spent on such anti-fraud systems shows that Onnuri Gift Certificates are failing to achieve their original objective.

It is not the government’s job to use tax money to support people trying to profit by cleverly exploiting gift certificates. Policymakers congratulate themselves by saying the certificates are selling well and have grown in scale, but that does not make the program a success. It has not increased social benefits; it has merely provided benefits to specific groups. This is an administrative failure because it builds perverse incentives into policy and shifts the burden onto the public through taxes.

As the saying goes, “placing a stone below and a roof above” (下石上臺), Onnuri Gift Certificates may raise sales at traditional markets to some extent, but they are not sustainable. Consumers, above all, want more convenient shopping. In light of changed consumption patterns, Onnuri Gift Certificates have distorted consumers’ natural choices and wasted public finances. It is also problematic that the system discriminates between merchants who benefit from the certificates and those excluded from them. Discrimination based on a particular location, a particular industry, or the size of a business establishment is not a proper way to administer policy.

The Onnuri Gift Certificate program must be reconsidered from the ground up. The government’s various gift certificate programs, represented by Onnuri Gift Certificates, are failed policies. If the taxes being投入ed are ineffective in achieving the goal of revitalizing traditional markets and merely waste taxpayer money, then the program should now be halted or drastically revised.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 온누리상품권의 허와 실

Author: Sung-no Choi

Date: 2024-10-30

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26967