Record-breaking 2021 budget proposed by government

Finance Minister Hong Nam-ki holds a press briefing on the 2021 government budget at the government complex in Sejong on Aug. 27. [YONHAP]

A record budget of 555.8 trillion won ($469.8 billion) has been finalized for 2021 by the government.

That is 8.5 percent more than the budget in 2020 and 2.4 percent higher than the original amount proposed in June. Next year’s budget is 1.6 percent larger than this year's — with the three supplementary budgets, totaling 59 trillion won, included.

Finance Minister Hong Nam-ki said aggressive fiscal expansion next year is not an option but a necessity that will determine Korea’s economic future.

He said it is the "final defense" in protecting the national economy and individual well-being in this time of crisis, and added that it will play a critical role during this "golden time," a period when aid must be administered to save a patient.

He said next year’s budget is focused on overcoming the impact of the coronavirus pandemic and helping the economy rebound through aggressive Korean New Deal spending. The goals of the New Deal are creating jobs, securing future growth through increasing the R&D and continuing the Moon government’s ongoing priority of an inclusive society through social welfare programs and an enhancement of public safety and quality of life.

A record 199.9 trillion won, 36 percent of the total, will be allocated to health, welfare and jobs. That is a 10.7 percent increase and continues a trend under the administration to increase spending in this category by 10 percent a year.

The budget for health, welfare and jobs first broke 100 trillion won in 2013.

Within the health, welfare and jobs budget, 30.6 trillion won was earmarked for jobs, a 20 percent increase. The funding will be used to create 570,000 new positions. Support will be directed toward the young, elderly, people with disabilities and startups.

A total of 46.9 trillion won will go toward social safety nets, including 20 trillion won for job security.

The biggest year-on-year increase will be in the funding of industry, SMEs and energy. The 29.1 trillion won allocated is 22.9 percent more than last year. New Deal projects will get 21.3 trillion won of funding.

"Next year will be year one of the Korean New Deal, which is a new national development strategy that aims [to turn Korea] into a leading global economy in the post Covid-19 era,” Hong said. He added that in total, when local government support is included, the program will get 32.5 trillion of funding, and he predicted that 360,000 jobs will be created.

The government earlier announced that by 2025, 160 trillion won would be invested in the Korean New Deal, 71 percent funded by the central government. It has also said that 1.9 million jobs will be created by the program by 2025.

The Digital New Deal will create 903,000 new jobs, while the Green New Deal will create 659,000.

Research and development are set to receive 27.2 trillion won in the 2021 budget, a 12.3 percent increase. The increase includes 430 billion won in Covid-19 research, of which 131.4 billion won will go toward vaccine development.

The government will increase spending on infrastructure by 11 percent, slightly down from the 13 percent increase in 2020. Moon had said earlier that he would break with predecessors and not spend so much on infrastructure to boost the economy.

The government projected next year’s total income to shrink 1.2 trillion won to 483 trillion won.

Tax revenue will fall 3.1 percent to 282.8 trillion won. The government expects income made from investments to increase 5.5 percent, or 10.4 trillion won, and make up for some of the lost taxes.

The government said it plans to issue 89.7 trillion won of bonds, another record, to cover the tax shortfall.

Next year’s national debt is expected to reach a record 945 trillion won. In 2017, when the current government took over, it was 660.2 trillion won.

The government’s total fiscal deficit is expected to hit 109.7 trillion won, also a record, and the national debt-to-GDP ratio is expected to rise to 46.7 percent from this year’s 43.5 percent.

Moon has argued for breaking the customary 40 percent debt-to-GDP ratio by saying that the country is in crisis.

On concerns over the growing national debt, Finance Minister Hong said that the spending is appropriate in a warlike situation.

“We’re at a time where we need to focus all of our capacity in overcoming the Covid-19 crisis and prepare for the major changes in our economic and social structure post-coronavirus,” Hong said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]