Record-high budget for 2021 raises fiscal soundness concern

Deputy Prime Minister and Finance Minster Hong Nam-ki, right, speaks during a press briefing at the Sejong Government Complex, Aug. 27. Yonhap

'Debt increase inevitable to bolster containment, consumption'

By Lee Kyung-min

The government has drafted a record-high budget of 555.8 trillion won ($470 billion) for 2021, Tuesday, as part of an expansionary fiscal plan to overcome the COVID-19 pandemic and bolster the Korean New Deal, a key growth initiative defined by digitization, job creation and strengthening the social safety net.

The 8.5 percent year-on-year increase from 512.3 trillion won in 2020 raises fiscal soundness concerns due to 89.7 trillion won in expected debt issuance, up almost 30 trillion won from 60 trillion won in 2020. This is inevitable given the spending total of 555.8 trillion won is expected to far surpass 483 trillion won in revenue total.

Also worrisome is a steep increase of the debt-to-GDP ratio to 46.7 percent ― up from 43.5 percent in 2020 ― as well as the fiscal balance, excluding four social funds, set to record a deficit of 109.7 trillion won, accounting for 5.4 percent of the GDP.

Notwithstanding the rapid debt hike, the government maintains the expansionary measure is required in times of what it called “war-like” economic devastation.

“The fiscal soundness has deteriorated to a degree amid the expansionary policy. But the government should fulfill the expected role in times of economic and public health crisis, even if it means temporarily incurring debt and deficit,” Deputy Prime Minister and Finance Minster Hong Nam-ki said during a press briefing at the Sejong Government Complex, Aug. 27.

Yet the budget failed to factor in further possible spread of COVID-19, increasing many state-run projects that should have undergone a radical readjustment, according to Seoul National University economist Kim So-young.

“The budget plan shows little effort for removing redundant government projects,” he said. “Welfare and other initiatives should have been drastically reduced to prepare for the possible third wave of the virus. The government will find little room to maneuver in the months to come.”

Over one-third, or 199.9 trillion won, will be needed for health, welfare and employment including 30.6 trillion won for a job creation drive.

A total 1.8 trillion won will be spent to strengthen containment and facilitate development of vaccines and treatments for COVID-19.

The budget increase is the sharpest year-on-year in industry, small- and medium-sized enterprises (SMEs) and energy (22.9 percent), followed by job creation (20 percent) and environment (16.7 percent), the key ministries for overseeing economic recovery and the Korean New Deal.

The key policy initiative to identify sustainable growth will need 21.3 trillion won including ways to foster digital services. Over 7.9 trillion won will be needed for digitization, 8 trillion won for eco-friendly projects and 5.4 trillion won for strengthening the social safety net. A 1 trillion won fund will be set up to foster investment in the government drive.

A 72.9 trillion won in state funding will be provided to induce private investment, up 18.4 trillion from 54.5 trillion won in 2020.

The government will spend 400 billion won to better finance export firms and help local firms win overseas plant construction deals, increasing the amount of relevant funds to 5.4 trillion won.

Some 100 billion won will be allocated for the Export-Import Bank of Korea (Eximbank) to offer loans needed to set up infrastructure in high-risk developing countries.

The government will help 3,800 local firms offer services via online platforms including U.S.-based Amazon, Singapore-based Qoo10 and China-based Taobao.

Welfare programs will be expanded for low income-earners, children and the disabled.

Some 300 billion won will be spent to help about 157,000 low-income households with dependents seek greater state welfare benefit. Relevant laws will be abolished to expand eligibility by 2022, when some 25,000 more households will be able to seek the same benefits.

Over 5.98 million people aged 65 and older, or the bottom 70 percent of that age group, will receive 300,000 won every month, an expansion from the bottom 40 percent. People with disabilities will receive 300,000 won every month, up from up to 254,000 won.

High school education will become free, following a 943.1 billion won budget allocated for the secondary school education ― despite the education ministry's budget 2.2 percent decrease to 71 trillion won in 2021 from 72.6 trillion won.

Up to 3 million won will be given in allowances to jobseekers who have less than 300 million won in assets and earn less than 50 percent of the median income.