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.
Need for supplementary budget gains traction
The National Assembly approves of next year's budget during a plenary session, Tuesday. Yonhap
By Yi Whan-woo
The need for a supplementary budget is growing after the National Assembly passed a budget plan on Tuesday that reduces next year’s national spending by trillions of won.
The budget plan, unilaterally proposed and passed by the main opposition Democratic Party of Korea (DPK), reduces the 2025 budget by 4.1 trillion won from the government's initial proposal of 677.4 trillion won ($473.7 billion).
A Ministry of Economy and Finance official said that whether the supplementary budget should be implemented will depend on the economic circumstances.
However, some financial experts said the extra spending will be “inevitable,” noting the government already has been reducing spending and that it may not sustain state affairs as the 2025 budget “drastically fell against its will.”
The experts pointed out the government has been struggling with a shortage in tax revenue. The shortfall amounted to a record 56.4 trillion won in 2023 and is estimated to stand at 30 trillion won this year.
“The situation is unlikely to improve next year,” Shin Yul, a political science professor at Myongji University, said.
The professor pointed out that the shortfall is mainly attributable to the shrinking proportion of corporate tax income.
In the first nine months of 2024, the amount of corporate tax declined 24.2 percent, or 17.4 trillion won, from the previous year to 54.5 trillion won, as companies struggle with weak earnings.
The sluggish stock market also resulted in less tax collection from securities transactions, which sank 19.7 percent to 3.9 trillion won over the January to September period.
The government argued that the budget should not be reduced as it needs “to grapple with change in international politics,” such as a second Donald Trump presidency.
Among the cuts to the budget were reductions to the government’s reserve fund, as well as special activity expenses for the presidential office’s secretariat, the national security office, the state audit agency, the prosecution service and the police.
Meanwhile, the main opposition party now also believes that a supplementary budget is necessary.
It wants to earmark trillions of won for the issuance of local currency vouchers, a move designed to help small merchants and the self-employed, plus money for free school uniforms, child care and renewable energy, among others.
The DPK is anticipated to propose a supplementary budget when the political turmoil concerning President Yoon Suk Yeol subsides.
The president is facing the possibility of impeachment due to his controversial martial law declaration, with the process likely to take several months.
Meanwhile, financial experts have raised concerns that a supplementary budget could impact the country's external image and trust, as the government would need to issue treasury bonds amid an increasing national debt-to-GDP ratio.
The government plans to issue treasury bonds worth 201.3 trillion won next year, meaning the amount will increase with a supplementary budget.
“The fiscal deficit will weigh on the country’s economy, which has been slowing down,” Hong Ki-hoon, a professor at Hongik University's College of Business, said.