Gov't tightens purse strings with biggest budget squeeze since 2005

Economy

Published: 29 Aug. 2023, 18:42 Updated: 29 Aug. 2023, 19:49

Gov't tightens purse strings with biggest budget squeeze since 2005

Finance Minister Choo Kyung-ho, right, explains next year's budget plant at the government complex in Sejong on Tuesday. [YONHAP]

The Yoon Suk Yeol administration continues to tighten its belt by capping next year’s budget growth to the lowest level since 2005 as it chooses austerity over economic stimulus.

Still, it earmarked increased funds for welfare and childcare to support people in low-income brackets and tackle the country’s extremely low birth rates.

The government set the total expenditure at 656.9 trillion won ($495.2 billion), up 2.8 percent from the previous year.

Finance Minister Choo Kyung-ho said that the growth represents the slimmest since 2005, when the government changed how the data is compiled.

“This reflects the government’s commitment to maintaining fiscal soundness,” Choo said.

“We are well aware of the fact that some people advocate extended spending by the government to shore up the economy. But we need to stay firm and adamant on normalizing our fiscal state and ensuring fiscal soundness,” he added.

Korea’s national debt — the total amount of money the government has borrowed — broke 1,000 trillion won ($756 billion) for the first time last year to record 1,067.7 trillion won.

The budget proposal was passed in a Cabinet meeting on Tuesday and submitted to the National Assembly on Sept. 1 for a final vote.

Welfare, the top priority of new budget plan

Across 12 different sectors, welfare was granted the highest amount of budgetary expenditure at 242.9 trillion won for 2024 — over a third of the entire spending — up 7.5 percent on year.

Under the new budget plan, the existing recipients of the government’s monthly allowances program will see the subsidies rise by 213,000 won, or 13.2 percent, if they belong to a four-member household.

The four-member family will be entitled to 1.83 million won per month from the current 1.62 million won.

The income threshold eligible for the monthly funding was relaxed to 32 percent of median income from the present 30 percent, increasing the number of beneficiaries.

Another area of focus is to boost persistently low fertility rates, where Korea currently sits bottom of global rankings.

The ministry expanded the budgets for families with new-born babies to 9 trillion won, upping it by 2.1 trillion won. The financial support will be made in the form of low-interest loans while those families will be prioritized when applying for public apartment complexes.

Parents with a one-year-old or below baby will receive a larger amount of monthly subsidies regardless of their income levels. If the baby is less than one-year-old, the parents are eligible for 1 million won from the current 700,000 won. For the households with a one-year-old baby, they can receive 500,000 won per month.

Another 2.2 trillion won was allocated for supporting working parents as the government will lengthen the maximum duration of paid parental leave from 12 months to 18 months.

The Yoon administration added 500 billion won to make funding for job creation of older adults 2 trillion won with an aim of increasing the number of jobs available for them to 1 million from the current 883,000.

Deep cuts in R&D, but not for advanced tech

Research and development (R&D) spending suffered the steepest cut among the 12 major sectors. Its budget came in at 25.9 trillion won, down 16.6 percent on year.

Up until now, the R&D sector was considered immune to the government’s attempts to cut, given that the segment enjoyed more than 10 percent growth in budget every year since 2018.

An official from the Finance Ministry explained that the trimming was made in select projects conducted by a handful of universities and research institutions.

Still, the government focused on excluding key industries from the impact of the cut.

The R&D funding for four areas — AI, bio, digital platform and cyber security — jumped to 4.4 trillion won from 3.6 trillion won.

“The government will push forwards large-scale projects centering around bio, aerospace, semiconductors and electric vehicle batteries,” Choo said during a media briefing.

Boost for SMEs

By government division, the Ministry of SMEs and Startups is among a small number of departments that saw its budget increase.

The ministry was allocated 14.5 trillion won for next year, up 7.3 percent on year.

The budget will be mainly used to support the management of small business owners as well as small and mid-sized enterprises. A total of 4.99 trillion won will be injected to support struggling business owners and to foster new ones. Out of that figure, 3.8 trillion won will be spent to support the finances of fledgling businesses as well as ease the financial burden of interest rates.

A total of 52.4 billion won will be spent to educate owners and enterprises so that they can be equipped with distinguished services and products to attract consumers, and 4.9 billion won will be spent to support failed owners and their reentry into new businesses or jobs.

The Korea Communications Commission (KCC) was given 236.4 billion won for the next year’s budget, a fall of 9.7 percent on year. However, it upped its budget to tackle fake news by 68 percent to 1.27 billion won.

Imposing stricter guidelines against fake news was emphasized by the new KCC chair on Monday.

The KCC said that 82.6 billion won will be spent to create a media ecosystem without digital discrimination, such as combating fake news and expanding programs and devices for the vision and hearing impaired, while 17.2 billion won will be injected to fund both conventional and new media.

A sum of 22.6 billion won will be used to come up with protective measures against distribution of harmful content related to sex, illegal filming and drugs.

The Ministry of Science and ICT will funnel in 21.5 trillion won next year, shedding 13.9 percent compared to this year. The move is mirroring the government’s retraction against R&D for information and communications technology for next year.

The Science Ministry will merge or abolish 108 government-funded projects worth 3.4 trillion won to revamp the ministry’s structure.

However, it will spend 10 trillion won on potential growth factors such as AI, bio, cyber security, semiconductors and space.

The ministry will spend 2.8 trillion won to foster new talent in such areas, encouraging them to participate in global R&D projects and supporting their equipment and research centers.

BY PARK EUN-JEE, LEE JAE-LIM [park.eunjee@joongang.co.kr]