Subscribe
E-Paper
By Yoon Ja-young
The Park Geun-hye government Thursday unveiled a "super expansion budget" for 2015 but at the risk of worsening the country's fiscal health.
The Ministry of Strategy and Finance announced an increase of 5.7 percent for the budget of 376 trillion won ($361 billion).
It represents the biggest hike since the global financial crisis in 2008.
The government's budget proposal will be submitted to the National Assembly for approval.
The spending on health, welfare and employment grew to 115.5 trillion won.
This means 30.7 percent of the budget will be spent on this sector, surpassing the 30 percent mark for the first time. The basic pension for senior citizens and other welfare spending were responsible for the hike.
Spending on childcare, family and women, meanwhile, will fall by 378.8 billion won to 5.8 trillion won.
Safety related issues spending jumped by 17.8 percent to 14.6 trillion won, reflecting the country's concern after the April ferry disaster that claimed more than 300 lives. It will cover improving the disaster communication system and purchasing more fire engines and emergency helicopters.
Spending on social overhead capital (SOC) will total 24.4 trillion won, slightly higher than this year's 23.7 trillion won.
The government allocated 8.3 trillion won for the "creative economy," up 17.1 percent from this year, to build innovation centers around the country and nurture Pangyo in Gyeonggi Province as the Silicon Valley of Korea.
"The most crucial aim is to revitalize the economy through the fiscal spending," said Bang Moon-kyu, vice finance minister in charge of the budget.
"We determined that it is crucial to make a virtuous cycle, where the expansionary fiscal spending boosts the economy to increase the household income, which will then increase the government's tax revenue," he explained.
However, the super budget is causing concern over the worsening fiscal soundness.
The country is expecting a 33 trillion won fiscal deficit next year, with the government debt surpassing 570 trillion won.
This is due to lower than expected tax collection due to the sluggish economy.
The country's real GDP grew by 0.5 percent in the second quarter this year, marking the lowest growth since the third quarter of 2012. Nominal GDP fell by 0.4 percent, the first drop since the global financial crisis.
The market is expecting a further lowering of the economic growth forecast for this year soon.
The sluggish economy is expected to decrease the government's tax income by eight to 9 trillion won than the previous estimation.
According to government predictions, its debt will expand to 570.1 trillion won, or 35.7 percent of GDP.
Analysts say that the government should focus on fiscal soundness. "The fiscal deficit will work to boost the economy only temporarily," said Lee Geun-tae, an economist at LG Economic Research Institute.
He said the government should take measures to revitalize growth potential, such as deregulation, instead of only seeking short-term boosting measures.
"Despite the poor tax income, the government isn't actively trying to bolster this...It has only increased tax on the working class, through hikes in cigarettes, and residential and automobile taxes," said Oh Kun-ho, head of the NGO "Welfare State We Make," suggesting that the government should admit there should be a tax hike.
The government, meanwhile, said the fiscal soundness will worsen only temporarily, as it will recover soundness for the mid- to long-term through economic recovery and fiscal reform.
 |
| Vice Finance Minister Bang Moon-kyu explains next year's "super expansion" budget proposal during a briefing Thursday. / Yonhap |
