|Finance Minister Hyun Oh-seok (right) and Financial Services Commission chairman Shin Je-yoon (second from left) applaud during a New Year’s ceremony at Lotte Hotel in downtown Seoul hosted by the country’s top financial companies. (Yonhap News)|
The government has decided to spend 65 percent of its annual budget during the first half of the year in a bid to revive the Korean economy, which is slumping under weak domestic demand and worsening external economic conditions.
The remainder of the budget will be reserved for the latter half of the year, officials said.
Further, the government appeared to be struggling to balance its spending to stay in line with policy initiatives to aim for even and sustainable growth throughout the year.
In a provisional meeting on Friday, the Cabinet approved a plan to allocate 65.4 percent of the country’s 309.7 trillion won ($293 billion) budget during the first half of this year.
More emphasis has been placed on the first quarter, as 40 percent of the amount allotted for the first six months of the year has been earmarked for the months of January, February and March.
“Government projects for stabilizing people’s livelihoods and boosting employment are assigned to be launched in the first half, whereas other cost-requiring contents have been evenly distributed throughout the year,” the Ministry of Strategy and Finance said in a press release.
The frontloading measure, now deemed to be the norm in Korea as a means for jumpstarting the economy, is less pronounced than in previous cases when some 70 percent or more was allotted in the first half of the year.
Last year, the government spent 71.6 percent of the annual budget during the first six months. In 2009 and 2010, shortly after the global financial crisis, the figures reached 70 percent and 69.8 percent, respectively.
Considering that the budget allocation amount is always higher than the amount actually spent, many observers saw this year’s budget allocation as “conservative.”
This compromise in the government’s financial strategy appeared to reflect the Finance Ministry’s plans for pursuing even and sustainable growth for the entire year.
Last year, the ministry’s economic policy director Kim Cheol-joo told reporters, “Both the Finance Ministry and the Bank of Korea agreed that the economy should see steady growth next year (2014).”
The average growth rate of each half of this year is likely to be between 3.5 percent and 4 percent compared to the previous half, the official added.
Even with the budget allocation strategy in place, the Park Geun-hye government is faced with other financial issues, including how to secure enough revenue without raising the tax rates.
Deputy Prime Minister and Finance Minister Hyun Oh-seok on Thursday stressed the importance of expanding the sources of tax revenue instead of increasing tax rates.
“When seeking to increase the amount of tax revenues, one usually thinks of a tax rate hike. But this is not the appropriate way of approaching the issue,” Hyun told reporters on Thursday during his visit to Jeonju, North Jeolla Province.
The National Assembly on Wednesday passed a revision tax bill to expand the lower income limit of the upper tax bracket from 300 million won down to 150 million won. The measure is to increase the number of subject taxpayers from 41,000 to 132,000.
“(The expansion of the high-amount taxpayers’ group) caused backlash but can no longer be delayed (in order to increase tax revenue),” the finance minister said.
By Bae Hyun-jung (firstname.lastname@example.org)