South Korea’s fiscal spending will climb 9.3 percent on-year in 2020, amid the government’s expansionary policy measures in response to growing economic uncertainties such as US-China friction and Japan’s trade curbs, according to officials.
The Ministry of Economy and Finance on Thursday laid out next year’s state budget bill and a five-year fiscal road map at a Cabinet meeting, as a preliminary step to parliamentary submission slated for Tuesday.
If the budget bill is passed by the National Assembly, the country’s total fiscal spending will stand at 513.5 trillion won ($424 billion) next year, up 43.9 trillion won or 9.3 percent from this year.
Deputy Prime Minister and Finance Minister Hong Nam-ki speaks at a press briefing on the government’s state budget bill for 2020. (Ministry of Economy and Finance)
“(The government) has drafted a maximum expansionary budget for next year, reflecting its determination to revitalize the economy even at the cost of temporary fiscal deficit,” Deputy Prime Minister and Finance Minister Hong Nam-ki said in a press briefing.
“This does not mean that (the government) has changed its fiscal policy direction, but rather that it has expanded its fiscal role in the face of current economic challenges.”
Seoul’s main goal is to create a virtuous cycle that leads from active fiscal spending to economic growth to increased tax revenue, according to the fiscal chief.
Budget spending on trade, small and medium-sized enterprises and energy will climb 27.5 percent to 23.9 trillion won next year, marking the steepest rise in fiscal input.
Innovative sectors such as R&D, the environment and social overhead capital are also to see a double-digit increase in budget next year, data showed.
In contrast to the increased scale of spending, the nation’s tax revenue for next year will be around 482 trillion won, up just 1.2 percent from this year, mainly due to the sluggish semiconductor business and the consequent fall in corporate tax, data showed.
“Tax revenue faces further challenges next year, as 5.1 trillion worth of national tax revenues will be transferred to local governments as part of (the government’s) fiscal decentralization policies,” said the finance minister.
“Also, the corporate tax total is almost certain to visibly dip next year due to the lackluster performance of the semiconductor sector this year.”
Under the circumstances, Korea’s national debt level will stand at 39.8 percent of its gross domestic product, up 2.7 percent from this year.
“(But) we should not be excessively concerned about this (debt-to-GDP) level, as it is conspicuously lower than those of peer economies,” Hong said, adding that Seoul has sufficient fiscal space for further spending, if required.
The corresponding average figure for member states of the Organization for Economic Cooperation and Development hovers around 100 percent, while the figure for Japan has remained above 200 percent for years, according to officials.
“The reason that we decided to maintain the national debt level within a reasonable range is to secure (fiscal) space in case of (inter-Korean) unification,” the minister said.
“Also, global credit rating agencies and foreign investors tend to react to the pace of debt increase, not so much to the amount itself.”
As for its five-year fiscal road map, the ministry said that the country’s debt-to-GDP would rise to the mid-40 percent level by 2023.
“Considering the nation’s fiscal soundness, we have judged that (such a pace) is both inevitable and acceptable,” Hong said.
By Bae Hyun-jung (firstname.lastname@example.org)