Govern­ment draws up record W429 tril. bud­get

The Korea Times - - FRONT PAGE - By Yoon Ja-young

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.

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