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.
Gov't to tighten belt further to improve fiscal health
President Yoon Suk Yeol bangs a gavel as he begins a weekly Cabinet meeting at the presidential office in Yongsan District in central Seoul, Tuesday. Yonhap
By Yi Whan-woo
2024 budget to increase 2.8%, marking slowest growth in 18 years
By Yi Whan-woo
The government plans to increase the national budget by 2.8 percent in 2024 compared to this year _ the smallest rate of growth in nearly two decades _ as it pursues belt-tightening measures to improve fiscal health amid an economic slowdown.
The Ministry of Economy and Finance on Tuesday proposed a budget of 656.9 trillion won ($495 billion) for 2024, compared to 638.7 trillion won this year.
The year-on-year increase will be the smallest seen since 2005.
The rate also marks a sharp fall from a 5.1 percent year-on-year increase in 2023, when the Yoon Suk Yeol administration reduced national expenditures from a year earlier to shift away from the pandemic-era stimulus policy embraced by the previous Moon Jae-in government.
The 2024 budget plan reflects an accelerated drop in tax revenues under the government's goal of easing the tax burden on businesses under Yoon's market-driven economic vision.
The budget estimates tax revenues to drop by a record 8.3 percent in 2024, and subsequently bring down total government income by 2.2 percent to 612.1 trillion won.
Endorsed by the Cabinet, Tuesday, the proposed budget will be submitted to the National Assembly for approval, Friday.
“The government has made a complete transition to a policy of improving fiscal soundness, while strongly rejecting the (reckless) expansionary policy,” Yoon said during a weekly Cabinet meeting.
He added that his government will “reduce the debt burden on future generations and instead bolster efforts for a transformation into a market-oriented and private sector-driven economy.”
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho warned that the “reckless management of the national budget will deteriorate our external fiscal credibility, while burdening the future generation excessively, especially at a time of challenges to fiscal health.”
The finance minister was referring to an estimated 58.2 trillion won shortfall in the fiscal balance for this year, which would lead to a fiscal deficit-to-GDP ratio of 2.6 percent.
In 2024, the fiscal deficit is expected to expand to 92 trillion won and the ratio of the deficit to GDP is forecast to reach 3.9 percent.
The 2024 deficit would surpass a 3-percent target set under the government's envisioned fiscal rule. The government eventually wants to reduce the fiscal deficit to around 2.5 percent of GDP by 2027, the final year of Yoon's presidency.
“Taking such unfavorable financial circumstances into account, the government will firmly adhere to the principle of improving financial soundness while making sure the budget is spent for the right purposes concerning economic revitalization, future, public safety, defense, among others,” Choo said.
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks during a preliminary briefing on the 2024 budget proposal at Government Complex Sejong, Thursday. Yonhap
The government will scrap or scale down multiple projects worth 23 trillion won that are regarded as being inefficient.
The saved amount in turn will be spent on social welfare, incentives for childbirth and investments in key industries, public safety and disaster prevention that need more financial support.
By category, spending on health, welfare and labor will increase by 7.5 percent to 242.9 trillion won. The budget includes support for families, extending childcare leave for parents and favoring families with newborns in purchasing homes.
It also allocated part of the budget to encourage the use of public transportation, while slashing spending for social overhead capital construction.
A total 27.2 trillion won, up 4.9 percent year-on-year, will be allocated to industrial sectors and small and medium-sized enterprises.
Another 1.9 trillion won, up from 1.5 trillion won, will be spent to stimulate sluggish export performance.
A total of 7.6 trillion won will be allocated for foreign affairs and inter-Korean affairs, including official development assistance (ODA) programs and projects to raise global awareness of North Korean human rights.
The amount especially includes 130 billion won for reconstruction projects in Ukraine.
In the meantime, the budget for unification and other activities intended to improve cross-border ties will be slashed by more than 40 percent _ the highest in 10 years. The reduction follows Yoon's view that the Unification Ministry should not be a government agency “aimed at supporting North Korea.”