Budget deficits continue as the economy slowsBudget deficits continue, as the tax take dwindles and the economy weakens amid trade tensions with Japan and higher social security spending.
According to the Finance Minister on Tuesday, in the first seven months of the year, the government recorded a 24.3 trillion won ($20.4 billion) deficit. The operational budget balance, which excludes social security, was minus 48.2 trillion won.
Although this is an improvement from the 38.5 trillion won budget deficit and the 59.5 trillion won operational budget deficit in the first half of the year, fiscal soundness is still a concern.
In the first seven months, 189.8 trillion won in taxes were collected. This is 800 billion won less than the same period a year ago. As a result, the government has reached 64.2 percent of the 294.8 trillion won tax target for the whole year. That’s a drop from 64.8 percent achieved during the same period a year ago.
In the first seven months, the government spent a total of 318.2 trillion won, which is 35.5 trillion won more than the same period a year ago.
Central government debt has now edged closer to the 700 trillion won mark. As of July, the number was an all-time record to 692.2 trillion won. Debt increased 5.4 trillion won in July.
“The budget deficit has increased as the government front-loaded the budget in the first half considering economic situation this year,” said a Finance Ministry official.
The government is likely to further increase its spending in the second half as it is adopting a more aggressive fiscal policy amid a rapid decline in economic growth.
The Finance Ministry in its report said it plans to reinvigorate the economy by aggressively expanding its fiscal policy so that the country’s economic growth potential does not weaken amid internal and external uncertainties.
The government has proposed a new record-size budget of 513.5 trillion won for next year, the main target being to stimulate the economy.
Finance Minister Hong earlier this month defended against concerns over worsening fiscal soundness while adding that the Moon government has no plans to raise the tax burden.
“Our debt-to-GDP ratio will be at 39.8 percent [next year], however, [the average for] other OECD economies under is at 110 percent,” said Hong on a talk show on KBS on Sunday. “In absolute terms, our fiscal health is very stable.
“We should be more concerned about the pace and rate of the rise of government debt.”
The Korean economy is currently facing deflation as inflation for the first time hit zero in August while the economy is decelerating.
There are already concerns over whether the Korean economy could even reach the 2.2 percent growth projected by the central bank, already much less the Finance Ministry’s 2.4 to 2.5 percent.
BY LEE HO-JEONG [firstname.lastname@example.org]