Government draws up record W429 tril. budget
The government has proposed its 2018 budget at 429 trillion won ($381 billion), the largest ever, expanding spending on welfare and education and slashing it for social overhead capital (SOC). This is a 7.1 percent increase from this year.
Finance Minister Kim Dong-yeon said Tuesday that the expansionary and aggressive budget was necessary to back up presidential pledges and induce a paradigm shift in growth strategy.
“If we can cut mid- to long-term costs through the paradigm shift, the government should spend money only when it is necessary,” he said. The finance and deputy prime minister added that an active role in financial policy matters more than fiscal soundness.
Included in the budget is 18.7 trillion won to support the Moon Jae-in administration’s pledges, which will cost 178 trillion won over the next five years.
It includes a 100,000 won monthly allowance for parents of children up to the age of five, and 1.2 trillion won for free childcare. Spending on support for SMEs employing young people and the creation of 15,000 government jobs are also included.
The government also allocated 1.7 trillion won to raise the basic monthly pension for senior citizens; 2.5 trillion won to provide public rental homes; and 100 billion won to set up infrastructure to take care of dementia patients.
The finance ministry explained that it focused on job creation, income-led and innovative growth, safety and human resources development in the budget allocation.
As a result, welfare, labor and education spending will increase, while a smaller amount of money will be allocated for SOC and culture.
The government allocated 146.2 trillion won for welfare, up 12.9 percent from this year, and making up 34 percent of the total budget, the highest ever.
“Structural problems such as low growth and polarization are hindering the working class from enjoying better lives. Fiscal policy should take a leading role to set up a virtuous circle of jobs, distribution and growth,” the minister said.
The government allocated 19.2 trillion won for job creation, which is the top priority for the Moon admin- istration. It also set aside 64.1 trillion won for education, up 11.7 percent from this year. The budget for national defense increased 6.9 percent to reach 43.1 trillion won amid growing North Korean threats.
The government, meanwhile, slimmed down tax expenditures by 11.5 trillion won, mostly from sectors that are not priorities in Moon’s policies.
The spending for SOC, was cut by 20 percent to 17.7 trillion won. The budget for culture, sports and tourism, which snowballed during former President Park Geun-hye’s administration, was also cut by 8.2 percent to 6.3 trillion won.
Total revenue is expected to be 447.1 trillion won, up 7.9 percent from this year.
This includes 268.2 trillion won in tax revenue, which is expected to increase by 10.7 percent from this year on improving corporate performance and a tax hike on the affluent.
Some experts, however, pointed out that the estimate seems to be too optimistic.
“The government’s outlook on the economy in the mid to long term may be too optimistic. While growth is slowing because of the decreasing working age population, the govern- ment plan is based on estimates that the economy will recover. The tax revenue may fall short of expectations and it may need to increase taxes,” said Lee Geun-tae, an economist at the LG Economic Research Institute.
While the budget reflects the income-led growth plan of the Moon administration, Lee said it remains to be seen whether it will be successful.
“The government slashed the SOC budget, but Korea still lacks infrastructure for leisure and culture, which should be bolstered so that people can spend their income, which would lead to the virtuous circle of income-led growth,” he added.
Government debt is expected to reach 708.9 trillion won, up 39 trillion won from this year and surpassing 700 trillion won for the first time. But the ratio of debt to GDP will go down from 39.6 percent this year to 39.5 percent.
“Despite increasing spending, the increase in tax revenue and restructuring in expenditure will improve the debt ratio,” said Koo Yun-cheol, the director heading the budget office at the finance ministry.
The debt to GDP ratio is expected to surpass 40 percent in 2020, with debt reaching 800 trillion won in 2021.