Budget expansion for recoveryThe government earmarked 376 trillion won ($361.4 billion) for next year’s budget, up 5.7 percent from this year. The government more or less accelerated potential supplementary spending. It chose to go all-out to stimulate the economy even at the risk of damaging fiscal state. It reflects the Deputy Prime Minister for the Economy Choi Kyung-hwan’s aggressive push in fiscal and monetary policy in order to do everything to jump-start the economy.
But it remains unclear how much the aggressive dose of fiscal prescription will help to aid sluggish domestic demand. Next year’s budgetary spending in name focused to revive the economy with increases aimed at supporting job and corporate investment growth. But apart from 17.1 percent surge in spending to encourage creative economy, most of other expenditures were modest rises in existing projects.
The biggest increases, in fact, were in welfare spending. Budget in welfare, healthcare and labor sector rose 9.1 trillion won to 115.5 trillion won, taking up nearly half of total on-year growth in budget from this year. The share took up largest-ever 30.7 percent of the budget. Because of the increase in welfare-related budget, fiscal spending to boost the economy remains limited.
But the overall increase in budget will weaken fiscal integrity. Because of slow growth in tax revenue, the government is estimated to incur a fiscal deficit of 33.6 trillion won, or 2.1 percent of gross domestic product. Fiscal debt is also expected to increase to 570.1 trillion won as debts will be issued in order to finance the deficit. The government hopes the deficit will be lesser if tax revenue grows from economic recovery. But that hope hinges on wishful thinking that the economy will pick up. Fiscal spending alone cannot turn the economy around. If it fails, the spending will only end up in debt.
In order to finance both spending to aid the economy and bolster social welfare, monetary and policy endeavors must follow to ensure economic recovery. The legislative must study hard if next year’s budget appropriation has been well devised to help the economy.
JoongAng Ilbo, Sept. 19, Page 38