The Korea Herald


[Editorial] Shift to fiscal soundness

2024 budget proposal increases by smallest rate; pork-barrel demands must be rejected

By Korea Herald

Published : Aug. 31, 2023 - 05:31

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The government budget proposal for 2024 which passed the Cabinet meeting Tuesday shows the Yoon Suk Yeol administration's will to recover its financial soundness through retrenchment.

Next year's expenditure budget amounts to 656.9 trillion won ($497 billion), 2.8 percent or 18.2 trillion won more than this year's. The on-year increase rate is the lowest since 2005 -- a big difference from the annual budget growth average of 8.7 percent for five years of the previous Moon Jae-in administration.

As the national debt is drawing near 1,100 trillion won and tax revenue is expected to run short, belt-tightening is the right step.

Even if the administration is committed to improving its financial health, it would have been difficult to suppress budget expansion, considering the general election in April.

If the government curbs expenditures at a time when they can help boost a low-growth economy, the national economy may lose energy to regain its vigor. The government likely knows this, but has made efforts to refrain from spending even in an election year because of snowballing national debt and fiscal deficit.

"Some people argue that the government should increase cash outlays, even by borrowing money if needed, because the national economy is in a bad shape,” Finance Minister Choo Kyung-ho said, “but it is an irresponsible act to seek immediate gains by increasing burdens on future generations."

The government made clear that it will use the budget efficiently through tough financial restructuring rather than increasing expenditures through the issuance of national bonds.

It will save a total of 23 trillion won, including 7 trillion won by curtailing the research and development budget and 4 trillion won by cutting back state-subsidized projects.

Most of the saved funding was allocated to social welfare and public safety programs. The welfare budget increased 8.7 percent and the budget for public order and safety 6.1 percent.

However, despite the smallest increase rate of expenditure since 2005, the national debt is forecast to swell by 61 trillion won and the fiscal deficit to 92 trillion won next year. The ratio of fiscal deficit to the gross domestic product is predicted to rise to 3.9 percent, higher than 3 percent that the government promised to keep. Still more efforts are needed to reduce national debt and fiscal deficit.

The soundness of government finance is said to be a key factor of sovereign ratings. South Korea was able to overcome foreign exchange and financial crises by reviving the fiscal health of the government.

While striving to cut down expenditure, the government must try to maximize its effect. To do so, it should employ a selective and concentrated strategy so that its spending can work better, like a pump priming water to get the country out of a low-growth rut. It must also speed labor, pension and education reforms to strengthen the fundamentals of the economy.

Now the key to retrenchment depends on how the budget bill will go through the National Assembly, which is dominated by the majority opposition party.

The opposition Democratic Party of Korea, which is calling for a 35 trillion won revised supplementary budget, must not shake the belt-tightening keynote of the government budget proposal.

When the party was in power, the Moon regime aggravated the government’s fiscal health with excessive expenditure. The previous administration drew up expansionary budgets each year. It was not afraid of snowballing debts and fiscal deficits. As a consequence, the national debt is expected to reach 1,196 trillion won next year.

The Yoon administration must reject lawmakers' demands for increase in pork barrel spending in their electorates. As the general elections are drawing near, such demands will get stronger.

Yoon said that his administration would reject vote-buying budgets. An unshakable resolution is needed for that. And the government must make further efforts to reduce the national debt and fiscal deficit.