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Fiscal deficit, national debt to increase from extra budget

Korea’s per capita national debt to reach record-high of W20.8 mil

Finance Minister Hong Nam-ki speaks about the supplementary budget bill for microbusiness owners during a news briefing at Government Complex Seoul, Friday. (Yonhap)
Finance Minister Hong Nam-ki speaks about the supplementary budget bill for microbusiness owners during a news briefing at Government Complex Seoul, Friday. (Yonhap)
SEJONG – South Korea’s national debt and the national debt per capita will likely reach an all-time high of 1,075.7 trillion won ($901.6 billion) and 20.83 million won, respectively, in the wake of the recent extra budget fostered by the government, with planned state funds aggravating the fiscal deficit.

The fiscal deficit from the supplementary budget will be widened to 68.1 trillion won, compared to the government’s earlier estimate of 54.1 trillion won under the 2022 regular budget.

On Friday, the Cabinet endorsed the supplementary budget worth 14 trillion won, most of which will be used for supporting the self-employed and microbusiness owners. The budget bill will be proposed to the National Assembly next Thursday.

The Finance Ministry said that 3 million won will be paid to each of 3.2 million self-employed people and microbusiness owners, who suffered drops in turnover due to COVID-19, when the Assembly passes the bill. The bill comes on the heels of earlier payouts of 1 million won in December 2021.

While it is an action to provide aid in terms of people’s financial status amid the pandemic, a main problem is that the extra budget could possibly undermine the nation’s fiscal soundness.

Many Koreans had believed that the budget would come from excess state tax revenue in 2021, for which an excess 30 trillion won in taxes is estimated to have been collected compared to the government’s earlier estimate.

But the government is not entitled to use the excess tax revenue before the nation’s account report over the 2021 fiscal year is confirmed in April 2022.

Instead, it has been found that creation of the extra budget is to be backed by the coming issuance of government bonds worth 11.3 trillion won, which will add to the fiscal deficit, data from the Finance Ministry showed.

The 14 trillion won for the extra budget will also come from public capital management funds worth 2.7 trillion won in addition to the government-issued bonds of 11.3 trillion won, said the ministry in a statement.

Under the scheme, the fiscal deficit will be increased to 68.1 trillion won -- the state revenue of 553.6 trillion won against the state expenditure of 621.7 trillion won. Under the regular budget for 2022, the estimated deficit was 54.1 trillion won.

In this situation, the national debt will come to a record-high of 1,075.7 trillion won, with the ratio of national debt to gross domestic product reaching 50.1 percent.

Given the population of 51.638 million as of December 2021, the national debt per capita will post 20.831 million won. Under the national debt of 965.3 trillion won last year, the per capita debt was 18.693 million won on the basis of the same population.

At a news briefing on the same day, Deputy Prime Minister and Finance Minister Hong Nam-ki said he expects that a certain portion of national debt will be paid back with the excess tax revenue slated for April. But he clarified that about 40 percent of the excess tax revenue will be allocated to budgets for local governments.

Asked about the possibility of the supplementary budget fanning inflationary pressure, Hong said the “direct impact on consumer prices is projected to be limited.” But he suggested that worries over consumer prices could be bigger if the volume of the budget exceeds 14 trillion won.

Some ruling party lawmakers have continued to call for the government to raise the extra budget volume to 20 trillion-30 trillion won.

While the minister has dismissed the demand at the present stage, he said the government will have the chance for discussions with lawmakers after the bill is proposed.

Worries are growing over the possibility that the extra budget will be a factor for accelerating the timing of interest rate hikes by the Bank of Korea amid continuous instability in consumer prices.

By Kim Yon-se (