The government on Tuesday released a state budget plan for 2018 worth 429 trillion won ($381 billion), marking the steepest annual rise in nine years and advocating an expansionary fiscal plan in welfare and job creation to back President Moon Jae-in’s income-led growth economic initiative.
The tentative budget for 2018, endorsed by the Cabinet in the morning, is up by 7.1 percent from this year’s 400.5 trillion won, according to the Ministry of Strategy and Finance.
With its approval deadline set for Dec. 2, the proposal is to be submitted to the National Assembly by Friday.
The fiscal plan showed visible expansions in welfare, education and national defense as well as a contrasting cut on public construction projects.
Spending on job creation, social welfare and education was boosted by 12.4 percent, 12.9 percent and 11.7 percent, respectively, while that for public works was slashed by an unprecedented 20 percent.
Following the change, the spending on welfare will stand at 146.2 trillion won, or 34.1 percent of the total, accounting for more than a third of the entire state budget for the first time. Of this amount, 19.2 trillion won has been allocated to creating jobs.
In response to persisting provocations from North Korea and the consequent geopolitical threats, spending on national defense was raised by 6.9 percent.
The budget for research and development, especially in the information technology and artificial intelligence sectors, was boosted by 0.9 percent in step with the “fourth industrial revolution.”
The government’s mandatory spending, including national pensions and medical insurances, has been set at 218 trillion won, or 50.8 percent of the total spending. Unlike discretionary spending, mandatory spending items are not subject to sudden cutbacks or alteration of use.
The budget for social overhead capital, on the other hand, was drastically cut by 20 percent, down to 17.7 trillion won, marking cuts for three consecutive years. Some 15.9 trillion won was allocated to the industries, small-sized companies and energy sector, which was 0.7 percent down on-year.
The 7.1-percent jump in state budget marked the steepest on-year rise since 2009 when the government injected an extra 10.4 percent in yearly budget in an effort to recover from the aftermath of the 2008 global financial crisis.
The increase was also higher than the estimated economic growth of 4.5 percent for next year.
“Fiscal sectors need to play a bigger role in establishing a virtuous circle of job creation, distribution (of wealth) and growth,” Deputy Prime Minister for Economic Affairs and Finance Minister Kim Dong-yeon said at an advanced press briefing held in Sejong Government Complex last week.
“There may be different opinions over the government’s expanded spending, but sustainable development is impossible unless we fundamentally change the structural problems of our society and economy.”
The total budget included 18.7 trillion won, which is the first yearly batch of the 178 trillion won supplementary budget allocated to finance the Moon administration’s aspiration to expand public welfare.
The expansionary fiscal moves raised concerns over the possibility of a tax hike, but the government’s claim is that it may make up for the margin with increased tax revenues and cost cutting.
The total tax revenue anticipated for next year is 268.2 trillion won, up 6.8 percent on-year, with a 4.9 percent rise in income tax and 10.2 percent rise in corporate tax, according to the ministry.
While the ruling liberal Democratic Party of Korea applauded the budget as a needed paradigm shift toward a people-focused economy, several economic experts expressed concerns on what they saw as the “excessive optimism” of Moon’s fiscal plan.
“(The budget bill) may turn out plausible in its first year but is likely to lead to a fiscal imbalance from the following years,” said Lee Keun-tae, a senior researcher at LG Economic Research Institute.
By Bae Hyun-jung (email@example.com