Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Government maintains belt-tightening stance in 2025 budget
President Yoon Suk Yeol presides over a Cabinet meeting at the presidential office in Seoul's Yongsan District, Tuesday. The Cabinet approved the budget plan for 2025. Yonhap
By Yi Whan-woo
Record R&D spending allocated, but SOC expenditure cut
The government plans to increase the 2025 national budget by 3.2 percent to 677.4 trillion won ($509.17 billion), aiming to sustain a modest growth in expenditures while adhering to a belt-tightening policy.
Announced by the Ministry of Economy and Finance, Tuesday, the 3.2 percent increase for 2025 is slightly higher than this year's 2.8 percent gain, which is the smallest year-on-year growth since fiscal statistics were revised in 2005.
Nevertheless, next year's increase of 3.2 percent is below the 4.2 percent rise that the government had previously projected for 2025 in its mid-term budget plan.
Correspondingly, the overall increase in government expenditures stands at 12.1 percent since President Yoon Suk Yeol began his five-year term in May 2022.
This rate marks the lowest increase in government expenditure for any administration in their third year since 2005.
“The government will continue to tighten fiscal policy, ensuring that spending is directed toward essential areas while upholding its principle of fiscal soundness,” Yoon said as he presided over a Cabinet meeting, Tuesday.
The president noted that national debt rose to over 1,000 trillion won under the previous Moon Jae-in administration's expansionary fiscal policy and remains above that level since then.
According to the government, this amount makes it challenging to slow the rapid increase in the debt-to-GDP ratio and keep it at 50.5 percent by 2028. The ratio is projected to reach 47.4 percent in 2024, up from 35.4 percent in 2017.
In a separate press briefing before the Cabinet meeting, Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok said the 2025 budget proposal "focuses on the essence of economic revitalization rather than merely increasing budget spending."
He also said, "The proposal is part of efforts to restore the sustainability of fiscal health, which was worsened during the pandemic era."
The Cabinet endorsed the proposal. The government will submit it to the National Assembly early next month for approval by December.
Salary hike for soldiers
Next year's budget plan is noteworthy for minimizing discretionary spending, which can be flexibly adjusted in fiscal policy, unlike mandatory spending such as pensions and government employee wages, according to the government.
The finance ministry plans to increase mandatory spending by 5.2 percent year-on-year to 365.6 trillion won. In contrast, discretionary spending will see only a 0.8 percent year-on-year rise, reaching 311.8 trillion won.
Spending on research and development (R&D) is set at 29.7 trillion won, marking an 11.8 percent increase from this year and setting a new record amount.
The increase rate for the 2024-25 period represents a turnaround from the 16.6 percent year-on-year decrease in 2024 R&D spending, which had raised concerns about intensified global competition in cutting-edge technologies.
Social infrastructure is the only area where spending will decrease next year, falling 3.6 percent year-on-year to 25.5 trillion won.
The government proposed a defense budget of 61.59 trillion won for 2025, representing a 3.6 percent increase from the previous year.
The amount includes a salary increase for conscripted soldiers, with sergeants seeing their monthly wage rise from 1.65 million won to 2.05 million won.
The proposal calls for a 3.7 percent year-on-year increase in expenditures on foreign affairs and inter-Korean unification issues.
The budget for the health, welfare, and labor sectors is planned to increase by 4.8 percent year-on-year, reaching 249 trillion won.
The spending is aimed at enhancing basic living assistance for the poor, creating more jobs for the elderly, and increasing allowances during parental leave, all in response to efforts to address a growth slowdown and demographic challenges.
The government allocates about 2 trillion won to address a shortage of doctors, particularly in essential medical fields and rural areas.
In addition, the government plans to provide a record 252,000 new public homes to stabilize the housing market.