Analysis of the 2025 Livelihood Recovery Support Fund: Effects of the Second Supplementary Budget, Outlook for Consumption Promotion and Economic Revitalization

2025 Livelihood Recovery Support Fund Analysis Overview

In an economic phase where consumer sentiment has frozen, the government is reigniting the flames of domestic demand. In June 2025, the government announced its plan to prepare a second supplementary budget worth approximately 20 trillion won, focusing on policies aimed at revitalizing domestic demand and recovering small businesses. The core of this supplementary budget is undoubtedly the 'livelihood recovery support fund.' Designed as a catalyst for consumer stimulation and a starting point for everyday recovery, this support fund is part of a strategy to revive the dampened real economy beyond short-term economic stimulus.

The structure and intention of the livelihood recovery support funds.

The living recovery support fund aims to go beyond simple one-time cash payments and focuses on policy design that directly stimulates consumption. In this supplementary budget, the government has adopted a two-tier structure, providing a basic payment of 150,000 won to all citizens and an additional 100,000 won to the bottom 90% of the population. As a result, most citizens, excluding the top 10%, will receive a total of 250,000 won. Furthermore, support for vulnerable groups will be significantly enhanced. For the near-poor and single-parent households, a total of 300,000 won will be provided, consisting of the basic 150,000 won plus an additional 150,000 won. For basic livelihood recipients, an additional 250,000 won will be given, making a total of 400,000 won for the first phase, which could reach up to 500,000 won when the second phase payment is included. This differentiated design by income level is the most notable feature of this support fund, pursuing both universality and equity simultaneously. The payment method will also utilize local currency and consumption vouchers to directly encourage spending. The aim is to execute purposeful fiscal spending, expecting to visibly stimulate the flow of the real economy, such as in alley markets and traditional markets. In fact, the government emphasizes the impact of finances in the field by stating, "Recovery lies where money circulates," and has made it clear that it intends to implement the measures as soon as possible.

Composition of the second supplementary budget and policy expansion

In addition to the livelihoods recovery support fund, this supplementary budget includes various measures for domestic recovery, such as local love gift certificates, expanded consumer coupons, and increased policy funds for small businesses. With the proposals submitted by each ministry exceeding 30 trillion won, the government and the ruling party have initially adjusted it to about 20 trillion won, but there are indications that some expansion may occur during the National Assembly review process in the future. This composition is interpreted as a 'short-term shock alleviation' strategy aimed at overcoming the consumption imbalance accumulated after the pandemic and the feeling of stagnation due to high-interest rates. In particular, small and medium-sized enterprises and self-employed individuals are struggling with revenue recovery, so policies to stimulate local consumption are expected to enhance the sense of impact in the field. The government expressed its commitment to using support funds and consumer coupon policies as a stepping stone for economic recovery in the second half of the year, under the belief that 'without domestic demand, there is no growth.' This supplementary budget, designed to not only be a short-term stimulus but also to serve as a driving force for structural recovery, will depend on the responsiveness of the field and the speed of execution.

Effectiveness Evaluation and Economic Outlook

Private research institutions are also paying attention to the effects of this supplementary budget. The Hyundai Research Institute projected that if the government's second supplementary budget and the Bank of Korea's interest rate cuts coincide, the domestic gross domestic product (GDP) growth rate could increase by up to 0.4 percentage points this year. Notably, the Consumer Sentiment Index (CSI) rebounded significantly, marking the largest increase in four years and seven months, indicating that policy expectations are influencing consumer sentiment. Predictions have also emerged that consumer recovery will begin in earnest in the third quarter of 2025. With direct cash policies such as the livelihood recovery support fund being implemented on the ground, a short-term increase in consumption is expected, and based on this, private consumption could play a key role in the recovery of the economy. However, the magnitude and sustainability of these effects can vary significantly depending on the speed of policy implementation, timing, and the perceived impact of the benefits.

Challenges and Prospects for Consumption Recovery

Of course, not everything is smooth sailing. There are also differences of opinion between the government and the ruling party. The Ministry of Economy and Finance emphasizes selective support and fiscal efficiency, expressing concerns over fiscal soundness, while some political circles continue to advocate for the necessity of universal payments. These discussions are expected to influence the final scale and structure of the supplementary budget during the National Assembly's deliberation process. Furthermore, for a virtuous cycle of consumption recovery to persist, we cannot rely solely on temporary cash payments. If the livelihood recovery support fund is a 'spark for short-term stimulus,' then it must be followed by medium- to long-term consumption promotion strategies, income stabilization policies, and the redesign of the local economic ecosystem that can politically expand this support. The government regards this supplementary budget as a 'turning point.' It serves as an opportunity to simultaneously revive the sluggish perceived economy and real consumption, and it will also be a test for restoring policy credibility. As the saying goes, the economy is psychological, and expectations tend to manifest themselves. Whether the livelihood recovery support fund and the second supplementary budget can create substantial changes beyond mere numbers will be a significant turning point in determining the direction of domestic demand in South Korea for the latter half of the year.