SEOUL EYES 429TRIL WON SPENDING BOOST

Government seeks to enhance welfare benefits, raise number and quality of jobs

SOUTH Korea plans to spend a record 429 trillion won (RM1.62 trillion) next year as the government seeks to boost welfare benefits and raise the number and quality of jobs.

The 2018 budget proposal is 7.1 per cent more than the initial plan for this year, the biggest gain since a jump in spending in 2009, when the economy was reeling from the global financial crisis. Welfare outlays would rise by the most on record, while spending for infrastructure, culture and sports would be reduced, according to a statement from the Finance Ministry.

President Moon Jae-in wants to reduce inequality and shift the economy’s export-led growth structure into one that is led by higher income and consumption.

With the supplementary budget for this year and expanded spending next year, the government expects the economy to grow at around three per cent.

“Fiscal policy needs to play an active, leading role to create a virtuous cycle between growth and distribution,” said Finance Minister Kim Dong-yeon at a briefing last week.

The spending plan reflected what the new administration wants and maintained the nation’s mid-to-long term fiscal soundness, said Kim.

Government revenue will increase by 7.9 per cent next year, owing to a tax-rate revision and improved corporate performance, the Finance Ministry. estimates.

The government’s debt was expected to be at 39.6 per cent of gross domestic product (GDP), while the deficit ratio would improve slightly to 1.6 per cent of GDP, according to the ministry.

Moon’s administration plans to raise spending by an average 5.8 per cent a year this year to 2021, and expects revenue to rise by 5.5 per cent. The fiscal deficit would be around two per cent and government debt around 40 per cent of GDP during the period, according to the statement.

“South Korea is jumping on the global trend of using active fiscal policy to boost growth,” said Meritz Securities economist Stephen Lee.

“The mid-term spending plan released today doesn’t raise immediate concerns over deterioration of fiscal balances, but it will be hard to maintain the soundness as the population ages.”

The government will submit the proposal to parliament on September 1.

South Korea is jumping on the global trend of using active fiscal policy to boost growth.

STEPHEN LEE Meritz Securities economist