The South Korean government is highly likely to draw up an “ultra-supersized budget” that surpasses 500 trillion won (US$440.92 billion) for the first time next year.
The guidelines for the 2020 state budget and fund operation plan, which was announced on March 26, calls on the government to play an active fiscal role. When this plan is realized, the government will have an expansionary budget for two years in a row since its inauguration. The government plans to determine the exact amount of the budget after confirming this year’s tax revenues.
Under the government’s fiscal plan for 2018 to 2020, which was disclosed last year, next year’s spending is expected to exceed 504 trillion won (US$444.44 billion) if spending for 2020 is increased by 7.3 percent as planned.
The government’s budget surpassed 400 trillion won (US$352.73 billion) in 2017. It shows a faster growth than 4 percent to 5 percent of the real economic growth rate, which takes into account inflation and economic growth rate. As it is a fait accompli that the government will draw up an extra budget for fine dust in the first half of this year, there is growing concern that it will put a heavier tax burden on the people and can lead to weaker financial stability.
The government approved the guidelines for the 2020 state budget and fund operation plan at the Cabinet meeting on March 26. Under the plan, it will play an active fiscal role focusing on proper response to the economy, redistribution of income and innovative growth.
The expansionary fiscal policy seems to continue throughout the present government. Under the fiscal plan for 2018-2020 revealed last year, next year’s spending stands at 504.60 trillion won ($444.97 billion),up 7.3 percent from this year’s record budget of 469.6 trillion won. The figure for 2021 is forecast to increase 6.2 percent on-year to 525.90 trillion won (US$463.76 billion), while that for 2022 will grow 5.9 percent to 567.60 trillion won (US$500.53 billion).
The government’s budget exceeded 100 trillion won (US$88.18 billion) in 2001 during the Kim Dae-jung administration for the first time. Since then, the figure surpassed 200 trillion won (US$176.37 billion) in 2005, 300 trillion won (US$264.55 billion) in 2011 and 400 trillion won (US$352.73 billion) in 2017. It will exceed 500 trillion won (US$440.92 billion) next year in just three years after it surpassed 400 trillion won (US$352.73 billion).
With a rapid rise in fiscal spending, the burden on the people will grow as well. The ratiooftaxationagainstgrossdomesticproduct (GDP) reached 20.28 percent last year. It was the first time that the tax burden ratio exceeded 20 percent. The government announced that it would maintain the tax burden ratio at little over 20 percent in the future but the tax burden on the people will increase further considering the pace of budget growth.
It also raises concerns over the nation’s financial stability. The government expects to see its tax revenues increase 60 trillion won (US$52.91 billion) over the next five years. However, tax revenues are expected to decrease because of the drop in corporate tax revenues from the weak domestic demand.