Next year’s budget could be boosted by 9%SEJONG - The government will propose to increase next year’s budget by 9 percent, continuing its expansionary fiscal policy to rev up the economy.
Minister of Economy and Finance Hong Nam-ki said Friday that the government is currently working to propose a budget of 513 trillion won ($423.2 billion) for next year to respond to increasing downward pressures on a slowing economy.
The planned budget falls in line with steep hikes to the government budget in recent years. This year’s 469.6 trillion won budget rose 9.5 percent from the previous year.
“Considering the current global economic situation, downward economic risks and the economic conditions this year and next year, the budget plan for 2020 needs to be made under an expansionary fiscal policy,” said Hong during a briefing at the Sejong Government Complex.
Hong explained that the government will increase reliance on bonds next year as it anticipates difficulties in tax intake.
“The economic conditions this year will reflect on next year’s tax collections,” explained Hong. “We expect difficulties especially in corporate taxes.
“As the tax collection situation will be more challenging, the size of bond issuances will greatly increase compared to this year,” said Hong, adding that the country’s debt-to-gross domestic product (GDP) ratio will likely rise to nearly 40 percent next year from the current 37.2 percent.
Despite growing economic headwinds such as an intensifying trade conflict with Japan and slumped exports, Hong also said the government will maintain this year’s economic growth target range of 2.4 percent to 2.5 percent.
“It will not be easy to reach the target,” admitted Hong. “However, I believe that we are not yet at the stage to make revisions, and we should instead focus all our efforts [at achieving the target].”
The Bank of Korea last month downgraded the country’s GDP growth forecast for this year by 0.3 percentage points to 2.2 percent, citing concerns after Tokyo tightened controls on exports of key industrial materials to Korea.
Earlier this month, global credit agency Fitch Ratings reduced Korea’s GDP growth outlook for next year by 0.3 percentage points to 2.3 percent.
The government plans to make budgetary changes worth 1.6 trillion won in state-run investment funds this year to help stimulate the economy.
The finance minister, who doubles as deputy prime minister for the economy, acknowledged increasing uncertainties for Korea’s financial markets as Seoul decided to withdraw from a military intelligence-sharing agreement with Tokyo a day earlier. The move promises to escalate the ongoing diplomatic and trade conflict with Japan.
“Due to the measure, it will likely be difficult to resolve Japan’s export restrictions through dialogue,” said Hong.
“We will make preparations to minimize losses to companies.”
Seoul’s announcement heightened worries that the withdrawal could also weigh on relations with the United States, which encouraged the intelligence agreement, known as the General Security of Military Information Agreement (Gsomia), between Korea and Japan three years ago.
The finance minister said that he did not expect the United States to take trade measures against Korea for the withdrawal but stressed that the government is closely monitoring financial markets for its potential impact.
He added that the government will carry out market stabilization measures if necessary.
The government is expected to submit next year’s budget to the National Assembly on Sept 3.
BY CHAE YUN-HWAN [email@example.com]