Leave campaigns out of the budgetThe Ministry of Strategy and Finance has proposed a budget for 2013 and will submit it to the National Assembly for review and approval on Tuesday. The proposed spending budget is increased by 5.3 percent to 342.5 trillion won ($306 billion). The target revenue is set at 373.1 trillion won, up 8.6 percent from this year. This underscores government efforts to stimulate the slowing economy without incurring major fiscal losses. Spending on welfare, health care and labor takes up the largest amount at 97.1 trillion won. The budget for education and research and development also surged to prepare society for future growth.
But attaining a balanced budget and stimulating the economy is a hard task. The ministry also worked on the budget based on an estimated 4 percent growth next year. But the economy is unlikely to pick up after modest growth of 3.3 percent this year due to the recession in Europe and slowdown in China. The state-run Korea Development Institute cut its growth estimate for next year to 3.4 percent from 4.1 percent. Most local and overseas investment banks and economists forecast the economy will grow no more than the mid-3 percent range. If the growth falls below 4 percent, fiscal deficits will increase due to reduced revenue.
The tax burden rate next year will edge up to 26.1 percent, which is necessary to finance increasing demand for social welfare and incrementally needs to be raised on par with the 35 percent average of member states of the Organization of Economic Cooperation and Development.
But imbalances remain. Corporate taxes next year are estimated to rise 1 percent while income and value-added taxes collected from salary workers, self-employed businesses and consumers are upped 12 percent and 9.1 percent, respectively. The discrepancy in the tax hikes will aggravate social polarization and undermine the principle of fairness in taxation. Moreover, the government cannot expect to collect that much revenue if the economy remains weak.
The ball is now in the National Assembly’s hands. But the budget may fall hostage to the legislature ahead of the December presidential election. Politicians came under fire for the failed free day care policy by calculating spending without thorough review of demand. They could repeat the mistake to attract votes. The budget has been drawn up by the outgoing government, but it is the incoming administration that would execute the spending next year. If candidates resort to populism, the budget will be wrecked, bundled up with campaign promises by the ruling and opposition candidates.
The government’s proposal is an imperfect recipe to attain both balance in the fiscal account and accelerated economic growth. It is the responsibility of the legislature to find the right ingredients to deliver an efficient spending plan. Politicians should fend off temptations to use the budget for political purposes.