Next year’s budget focuses on industry
The Ministry of Economy and Finance on Thursday proposed a 513.5 trillion won ($422 billion) budget for 2020, a new record high that is a rise of 9.3 percent from this year’s budget.
Under the proposal, the government seeks to raise research & development (R&D) spending for next year to 24.1 trillion won, also a new record and a rise of 17.3 percent from this year’s budget. The budget aims to bolster development in localizing production of key industrial materials and equipment likely to be affected by recent export restrictions from Japan.
The ongoing trade row with Japan escalated to new levels on Wednesday when Korea was officially removed from Tokyo’s so-called white list of preferential trade partners. The move allows Japanese authorities to tighten export processes on over 1,100 product categories to Korea, including materials essential for Korean industries. Next year’s R&D budget plans to foster local production of those key materials to address heightened uncertainties to existing supply routes.
The government also plans to spend 23.9 trillion won for its budget category for industries, small- and medium-sized companies and energy next year, a 27.5 percent hike from this year’s budget. The steep hike seeks to help businesses amid Korea’s recent export woes and challenging economic conditions.
Exports recorded on-year declines for the eighth consecutive month in July, while the central bank recently downgraded this year’s economic growth outlook by 0.3 percentage points to 2.2 percent.
The main spending for next year, however, focuses on health care, welfare and labor as the government proposed 181.6 trillion won for the category, up from 161 trillion won allocated this year. This represents over one-third of the proposed budget.
The government plans to use the increased spending to raise basic pension rates and increase support for health care insurance.
The job budget, which falls within that broad category, will be raised by 21.3 percent from this year to 25.8 trillion won to expand support for a job market that has recently picked up through more work for the elderly. Next year’s budget aims to create 130,000 more jobs for older people.
The defense budget also will rise by 7.4 percent to a record level of 50.2 trillion won. Spending will focus on introducing new military equipment and technologies such as F-35A jets and a submarine.
The overall budget underscores the administration’s expansionary fiscal drive to stimulate a slowing economy and commit to welfare support, but at the cost of weighing down on the country’s robust fiscal health.
Finance Minister Hong Nam-ki explained that next year’s budget is necessary to help the slowing economy.
“The 2020 budget proposal contains a strong commitment for an economic recovery,” said Hong at a briefing in the Sejong Government Complex on Tuesday.
“Considering the external and internal conditions and expanding downward risks, we require an active fiscal role more than ever next year,” explained Hong, citing the U.S.-China trade conflict, export restrictions from Japan and slowing investment and exports.
However, concerns exist over fiscal expansion amid the slowing tax intake.
Next year’s corporate taxes will be levied based on this year’s performance, and considering the difficult conditions for businesses this year, overall tax income will rise only 1.2 percent.
The Finance Ministry said it will issue 60.2 trillion won worth of bonds next year compared to the 33.8 trillion won worth of bonds this year. Government debt is expected to rise next year to 805.5 trillion won from this year’s 740.8 trillion won.
That will raise the national debt-to-GDP ratio to 39.8 percent next year from this year’s 37.1 percent. Under a five-year fiscal plan also released on Thursday, the country’s debt-to-GDP ratio will rise to 46.4 percent in 2023.
BY CHAE YUN-HWAN [email@example.com]
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