Different fates for R&D and infrastructure

The budget squeeze for next year will take a heavy toll on new growth engines, including research and development (R&D), while the spending on infrastructure remains relatively intact.

The role of the government has become more imperative amid growing uncertainties from China’s economic slowdown and reshaping of global supply chains. The government axed as much as 23 trillion won ($17.3 billion) in subsidies and spending for so-called industrial cartels to set aside more money to create “quality jobs and spur the growth engine.”

The budget outlay raises questions as to if it could meet the goal. Spending on seven state-supported industrial complexes for advanced technologies like chips, batteries and displays stopped at 400 billion won, including 277.8 billion won going to training the workforce. The R&D budget was also shaved off by 16.6 percent, including a 6.2 percent cut in basic research which is fundamental to future technology development.

Governments around the world are competing to foster new industries through aggressive spending. The United States is changing its industrial map through the Inflation Reduction Act and the CHIPS and Science Act. Taiwan has greater tax incentives for chip investment than Korea. As companies go all-out to nurture businesses opening avenues of growth for the future, governments must do the same.

Despite the overall streamlining of the 2024 budget, outlays for infrastructure increased 4.6 percent from this year. The budget would go to building the KTX high-speed train network connecting Incheon, opening the GTX-A fast railway section connecting the capital’s northwestern outskirts, building a new Gadeok island airport in Busan, an inner city monorail in Daegu, and a subway tram in Daegon, as well as the Seosan airport in South Chungcheong which was exempted from a feasibility study despite questions about its economic value.

All governments rely on infrastructure projects to win over local voters. The Moon Jae-in administration spent heavily on regional infrastructure, such as libraries, to avoid criticism on pork-barrel projects. In the final year of the liberal administration, multi-billion-dollar projects were budgeted after exempting preliminary feasibility studies. The conservative Yoon administration, which vowed to uphold sustainable fiscal integrity, should be different from its predecessor. The government and the party must set an example and keep at bay the reckless demands for hefty spending for their own constituencies made by opposition lawmakers during the budget review. Moreover, any questionable infrastructure projects should be filtered out during the legislative review.