By Choi Sung-jin
As always, government budgeters seem to have taken considerable pains to kill two birds with one stone _ propping up a sluggish economy and improving fiscal health _ in formulating the 2017 budget.
Yet the so-called expansionary budget of 400.7 trillion won ($358 billion), despite its symbolic meaning of breaking the 400 trillion won threshold for the first time, grew only 3.7 percent from this year, smaller than the nominal economic growth rate of 4.1 percent targeted for next year.
The rate appears modest compared with spending increases of 4.6 percent in 2014 and 5.7 percent in 2015.
Experts who focus on further economic expansion say rapid growth in welfare spending, from 9.7 trillion won in 2013 to 13 trillion won next year, has sharply reduced the budget for economic areas such as social infrastructure and research and development.
“It is natural the government’s welfare budget increases as Korea becomes an advanced country, but our spending in this area is growing so rapidly that we have to work out special measures,” said an official at the Ministry of Strategy and Finance. According to U.S. statistics, the share of the population aged 65 or older, which was 13.1 percent of the total last year, is expected to reach 35.9 percent in 2050, resulting in the explosive growth of the welfare budget.
In addition, the central government has set aside 41 trillion won and 46 trillion won, respectively, for grants and educational subsidies to local governments. Add about 40 trillion won in defense budget and only 143 trillion won, 36 percent of the total, is left for spending on “economic affairs,” such as bolstering the economy and preparing for the future, the experts say.
The government plans to reduce budgets for industry and social infrastructure by 1.7 percent and 6 percent a year until 2020, and increase its R&D spending by only 1.5 percent.
“Government budgeters are getting increasingly stingy on industry, R&D and social overhead capital (SOC), which can increase jobs by stirring up demand structurally while increasing the budget for vocational training and other projects that create short-term jobs with fiscal spending,” said Professor Kim Won-shik of Konkuk University. “They don’t pay much attention to future planning.”
A government official expressed different views, however. “Reducing budgets related with economic affairs, such as R&D spending, is common among advanced countries,” said Kim Dae-ki, former senior presidential secretary for economic affairs. “Instead of pouring taxpayers’ money into these areas, the government should work out institutional devices to induce private investment into R&D and other projects to promote the nation’s industries.”
Economic experts who put emphasis on the budget’s function for fairer redistribution agreed, based on the budget structures of other member nations of the Organization for Economic Cooperation and Development, a group of mostly rich countries.
According to an analysis of OECD data, Korea’s budget is smaller than most members. As of 2014, the nation’s fiscal spending accounted for 31.98 percent of its gross domestic product, the lowest among OECD countries and way below its average of 44.99 percent.
One noticeable characteristic of the Korean government’s budget is the high share of the “economic affairs” budget, which was 5.32 percent of GDP, far higher than the OECD’s average of 4.73 percent, ranking eighth among 30 countries surveyed.
“This indicates the nation’s economic structure is relatively more led by the state, which makes direct intervention in economic management or exerts heavy influence on the private sector,” a civic activist said.
On the other hand, spending on “social protection,” including public welfare, was 5.86 percent, the lowest among the 30 countries and more than 10 percentage points lower than the OECD’s average of 16.64 percent.
“What this analysis shows is the government should spend far more on welfare and health areas while allocating less to industrial promotion,” the activist said.
Some fiscal doves, while pointing out that Korea’s government debt remains about 40 percent of GDP, far lower than the OECD average of 115 percent, want a far bolder budget to expand the nation’s narrow social safety net and to prepare for growth at the same time _ even if it leads to increases in state liabilities.