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S. Korea's gov't proposes record 429 tln won for 2018 budget

2017/08/29 09:00

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By Kim Boram

SEJONG, Aug. 29 (Yonhap) -- The South Korea government increased its 2018 budget at the fastest clip in nine years to spearhead President Moon Jae-in's "income-led growth" pledge through expansionary fiscal policy especially in welfare and job creation sectors.

The proposed budget, which was endorsed by the Cabinet on Tuesday, calls for 429 trillion won (US$382.6 billion) in spending for 2018, up 7.1 percent from 400.5 trillion won assigned for this year, according to the Ministry of Strategy and Finance.

It 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, and 6.9 percent for national defense. Expenditure on public works has been slashed by 20 percent and those for culture and sports cut by 8.2 percent.

The government will submit the budget proposal before the National Assembly by Friday, which is required by law to pass the bill by Dec. 2.

The 7.1-percent increase in the 2018 budget marked the largest on-year gain since 2009 when government spending jumped 10.4 percent to buttress Asia's fourth-largest economy in the aftermath of the 2008 global financial crisis. It is also higher than an estimated nominal economic growth of 4.5 percent for next year.

"It is necessary for the fiscal authorities to play a bigger role in setting up a virtuous circle of job creation, distribution and growth," Finance Minister Kim Dong-yeon said in a press briefing held earlier in Sejong. "Next year is the first full year for the Moon Jae-in administration to implement its policies. The 2018 budget proposal has tried to include all necessary spending requests."


South Korea's Finance Minister Kim Dong-yeon (C) and ministry officials participate in a press briefing on the 2018 budget proposal held in Sejong on Aug. 25, 2017. (Courtesy of the Ministry of Strategy and Finance) South Korea's Finance Minister Kim Dong-yeon (C) and ministry officials participate in a press briefing on the 2018 budget proposal held in Sejong on Aug. 25, 2017. (Courtesy of the Ministry of Strategy and Finance)

According to the plan, the government expects to collect 447.1 trillion won in total revenue next year, up 7.9 percent on-year, including 268.2 trillion won in national taxes. Income tax is predicted to rise 4.9 percent and corporate taxes will likely advance 10.2 percent, with value added taxes gaining 7.7 percent.

The finance ministry said the 2018 outlay is aimed at supporting the president's pledge focused on bolstering household income, with policymakers saying it can increase consumption with the help of various policy tools. Such a development can fuel sustainable economic growth.

The president has said that the government will run various job-creating policies throughout his five-year term to increase the income of young people, temporary workers, and small and mid-sized enterprise (SME) employees in a way to boost private consumption that can prop up the economy in the end.

In line with this slogan, the government has announced a set of schemes to back Moon's other key campaign promises that are estimated to cost 178 trillion won for the coming five years, including a plan to raise the minimum hourly wage to 10,000 won from the current 6,470 won, and offer a variety of subsidies to lessen income disparity.

On the policy road map released last month, Asia's fourth-largest economy will run future economic policies under four key principles -- income-led growth, job-creating economy, fair economy and innovative growth -- as household spending will be the new growth momentum of the economy.

Also, the government unveiled a plan to increase the tax burden on well-off individuals and businesses to secure funds for costly welfare packages and job creating projects.

In order to play a stronger fiscal role in jump-starting such cycle, the finance ministry said it will manage the growth pace of fiscal spending faster than that of nominal GDP in the coming five years.

As a result, a large bulk of spending was allocated to the health, welfare and labor sectors, for which about 146.2 trillion won will be set aside. It is the first time that the welfare expenditure accounts for more than a third of the entire government budget.

In particular, 19.2 trillion won will be used to create jobs including 30,000 positions in the public sector like police officers and quarantine officials, and to give financial support to SMEs which employ more young job seekers.

The government will also expand financial support such as children subsidies and basic pensions in accordance with the stages of a person's life cycle to help households have more income.

The requested budget for national defense increased 6.9 percent to 43.1 trillion won next year to heighten military capabilities against North Korea's possible nuclear and missile attacks.

For education, the government will spend 64.1 trillion won next year, up 11.7 percent from a year earlier, while it asked for 19.6 trillion won and 18.9 trillion won to be spent on research and development, and public safety, respectively.

Despite gains in such areas, the government plans to cut its spending on social overhead capital by a record 20 percent to 17.7 trillion won, for the sake of promoting fiscal budget efficiency, according to the finance ministry.

The allowances for culture, sports and tourism will also be reduced by 8.2 percent due to a drop in funding for the 2018 PyeongChang Winter Olympics slated for February next year.

The finance ministry said it aims to maintain sound fiscal status in the long term.

"The government is carrying out tough restructuring of government spending by removing a number of unnecessary projects," said Finance Minister Kim. "But we expanded the total amount of budget while improving efficiency at the same time."

   To cover the spending hike for next year, the ministry said it plans to issue some 28 trillion won worth of state bonds, unchanged from this year.

The fiscal deficit is estimated to mark 1.6 percent of the country's gross domestic product (GDP) next year, compared with 1.7 percent for 2017, while the national debt-GDP ratio will fall 0.1 percentage point to 39.6 percent.

The ministry will maintain the fiscal deficit to the GDP ratio at 2.1 percent by 2021 and hold the national debt at 40.4 percent level of the GDP in the coming four years.