The government proposed a 3 percent increase in its 2016 budget formulation from this year to continue to push for an expansionary economic policy next year despite concerns over worsening fiscal soundness.
The Finance Ministry said Tuesday that the budget proposal reflects the administration’s full-fledged effort to invigorate sagging private consumption and exports.
The budget scheme, which is to be proposed before the National Assembly on Sept. 11, amounts to 386.7 trillion won ($322.2 billion), more than 3 percent higher than the previous year’s 375.4 trillion won.
The government’s planned spending surpasses its estimate of its 2016 revenue growth, which is set at 2.4 percent on-year, said Deputy Prime Minister and Finance Minister Choi Kyung-hwan at a news briefing.
“(Some people) are raising concerns over deterioration of the fiscal soundness. But tolerating the worsening fiscal balance would ultimately maintain soundness,” he said.
In accordance with his comments, the Finance Ministry expected in its budget proposal that the ratio of national debt to gross domestic product would increase by 2.6 percentage points from 38.5 percent in 2015 to 40.1 percent in 2016.
The finance balance between earnings and expenditure is also projected to worsen to minus 2.3 percent, from the current minus 2.1 percent.
This would be the first time in Korea’s history that the national debt-to-GDP ratio topped 40 trillion won. Further, the figure is likely to surge to 41 percent in 2017, according to analysis from the ministry.
The ministry, however, painted a rosy picture of the country’s long-term fiscal soundness, predicting the balance will improve to minus 0.9 percent -- though it would still represent a fiscal deficit -- by 2019, after touching the bottom of minus 2.3 percent next year.
To prevent further weakness in the soundness, Choi vowed to conduct a tough overhaul of the government agency structure via consolidation or scaling back budget allocations for public firms with poor performances.
The 2016 budget proposal is focused on expanding spending on job creation, fostering the culture sector and bolstering military readiness.
More than 15 trillion won, up 12 percent from this year, will be set aside to help the country grapple with the high youth unemployment rate.
By industry, the government particularly plans to increase the amount of money spent on culture promotion by 7.5 percent to 6.6 trillion won. Spending worth 122 trillion won on health, welfare and labor is also planned, up 6.2 percent from 2015.
It also seeks to mark up defense spending by 4 percent to 39 trillion won next year to build up the country’s capabilities against North Korea as well as to raise wages for soldiers.
It will provide 17.5 trillion won to strengthen public safety, a gain of 3 percent compared to 2015, while it is poised to allocate 18.9 trillion won for research and development, up 0.2 percent.
When it comes to state revenue, it will bring in 223.1 trillion won worth of national taxes, up 7.4 percent on a year-on-year basis, while it aims to collect up to 46 trillion won in corporate taxes, up 4.4 percent from 2015.
The ministry predicts the economy will expand 3.3 percent on-year in 2016, down from its initial growth estimate of 3.5 percent in June.
Simultaneously, it has revised down the 2015 GDP outlook to 3.1 percent from an earlier 3.3 percent.
A main concern among opponents of expansionary policy is that the tax revenue will fall short of the state target if growth stays below 3 percent. The fiscal deficit could possibly mount in that scenario.
The Assembly is scheduled to review the budget proposal over the next three months.
By Kim Yon-se (email@example.com