Record-high Budget for 1918
The South Korean government has raised its 2018 budget 7.1 percent from that for this year to 429 trillion won (US$381.1 billion). The Moon Jae-in administration's first proposed budget calls for boosting spending on job creation and social welfare by 12.4 percent and 12.9 percent, respectively, with an 11.7-percent rise for education. However, the budget for social overhead capital (SOC) has been slashed by 20 percent. It also includes an 11 trillion won cut in tax expenditures to maintain fiscal sustainability.
The government determined the 429 trillion won (US$381.1 billion) budget for next year during a Cabinet meeting chaired by Prime Minister Lee Nak-yon at the Government Complex Sejong on August 29. The plan will be submitted to the National Assembly for approval on September 1.
The proposed budget calls for 429 trillion won (US$381.1 billion) in spending for 2018, up 7.1 percent, or 28.4 trillion won (US$25.23 billion), from 400.5 trillion won (US$355.78 billion) assigned for this year. The 7.1-percent increase in the 2018 budget marked the largest gain in nine years after government spending jumped 10.6 percent in 2009 to buttress Asia's fourth-largest economy in the aftermath of the global financial crisis. It also showed a 4.6 percent rise from 410.1 trillion won (US$364.31 billion) of this year’s revised supplementary budget.
Deputy Prime Minister and Finance Minister Kim Dong-yeon said, “There are priorities when playing a stronger fiscal role. If we can cut mid- to long-term costs through the paradigm shift, the government should spend money only when it is necessary.”
The next year’s proposed budget has come up to implement the Moon Jae-in administration’s policy tasks as well as realize “people-oriented and sustainable economic growth.” Included in the budget is 18.7 trillion won (US$16.61 billion) to support the Moon Jae-in administration's pledges, which will cost 178 trillion won (US$158.12 billion) over the next five years.
A large bulk of spending was allocated to eight sectors including health, welfare and labor. The government allocated 146.2 trillion won (US$129.84 billion) for the health, welfare and labor sectors, up 12.9 percent, or 16.7 trillion won (US$14.83 billion) from this year. It is the first time that the welfare expenditure accounts for more than a third of the entire government budget. In particular, the government allocated 19.2 trillion won (US$17.05 billion) for job creation, which is the top priority for the Moon Jae-in administration, up 12.4 percent, and 3.1 trillion won (US$2.75 billion) for youth employment, up 20.9 percent.
It also set aside 64.1 trillion won (US$56.93 billion) for education, up 11.7 percent, or 6.7 trillion won (US$5.95 billion) from this year. The budget for local administration also increased 10 percent, or 6.3 trillion won (US$5.6 billion) to 69.6 trillion won (US$61.81 billion). This is largely due to the increase of financial grants for local education by 15.4 percent, or 6.6 trillion won (US$5.86 billion) to 49.6 trillion won (US$44.05 billion) and local grant taxes by 12.9 percent, or 5.2 trillion won (US$4.62 billion) to 46 trillion won (US$40.85 billion).
The budget for national defense jumped 6.9 percent, or 2.8 trillion won (US$2.49 billion), to reach 43.1 trillion won (US$38.28 billion) as the nation seeks to modernize its military equipment to counter the rising threats from North Korea. The expenditure for diplomacy and unification also increased 5.2 percent, or 200 billion won (US$177.62 million), to 4.8 trillion won (US$4.26 billion).
The government, meanwhile, slimmed down tax expenditures by 11.5 trillion won (US$10.21 billion), mostly from sectors that are not priorities in Moon's policies. The spending for SOC was cut by as much as 20 percent, or 4.4 trillion won (US$3.91 billion), to 17.7 trillion won (US$15.72 billion). The budget for industry, small and mid-size business and energy was also slashed by 0.7 percent, or 100 billion won (US$88.81 million), to 15.9 trillion won (US$14.12 billion), while the expenditure on culture, sports and tourism, was cut by 8.2 percent, or 600 billion won (US$532.86 million), to 6.3 trillion won (US$5.6 billion).
The government expects that the total revenue for the next year will stand at 447.1 trillion won (US$397.25 billion), up 7.9 percent, or 32.8 trillion won (US$29.14 billion) from this year. This includes 268.2 trillion won (US$238.29 billion) in tax revenue, which is expected to increase by 10.7 percent, or 25.9 trillion won (US$23.01 billion), from this year on improving corporate performance and a tax hike on the affluent.
The ratio of taxes, including national and local taxes, against gross domestic product (GDP) will increase from 18.8 percent this year to 19.6 percent next year. The nation’s fiscal deficit is expected to increase 1 trillion won (US$888.49 million) from 28 trillion won (US$24.88 billion) this year to 29 trillion won (US$25.77 billion) next year. The government debt will reach 709 trillion won (US$629.94 billion) next year, up 39 trillion won (US$34.65 billion) from 670 trillion won (US$595.29 billion) this year. However, the government plans to lower the ratio of debt to GDP by 0.1 percent point to 39.6 percent next year with its proactive financial innovation plans including fiscal restructuring.