Korea shifts to belt-tightening mode by cutting budget for first time in 13 years

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho gives a preliminary briefing on the 2023 budget proposal at Government Complex Sejong, Thursday. The proposal was endorsed at a Cabinet meeting, Tuesday and will be submitted to the National Assembly for approval. Yonhap

Gov't plans to slash spending on SOC, COVID but spend more on chips, defense

By Yi Whan-woo

The government said Tuesday that it will cut the national budget in 2023 for the first time in 13 years. The decision reflects a shift to a belt-tightening mode to improve fiscal health and keep soaring inflation in check, in contrast to the pandemic-era stimulus policy under the previous Moon Jae-in administration.

The new budget sharply cuts spending on non-core expenditures in areas such as social infrastructure and energy, while increasing spending on nurturing future growth engines and supporting the vulnerable.

The first budget proposal under President Yoon Suk-yeol was unveiled Tuesday by the Ministry of Economy and Finance.

Under the proposal, the finance ministry plans to reduce national spending for next year to 639 trillion won ($473 billion), down 6 percent from this year's total expenditure of 679.5 trillion won which includes two rounds of extra budgets. This will be the first time since 2010 that the budget proposal is smaller than the previous year's expenditure.

The proposed amount is 5.2 percent higher than this year's regular budget of 607.7 trillion won, marking the slowest spending growth since 2017 at 3.7 percent.

On average, the fiscal spending is planned to increase at 4.6 percent from 2022 to 2026, compared to 8.7 percent from 2018 to 2022.

The government aims to reduce the debt-to-GDP ratio to 49.8 percent in 2023 from this year's 50 percent, marking the first decrease in five years. The ultimate goal is to maintain the ratio below the mid-50 percent level until 2026, shifting away from aggressive fiscal spending by the previous administration that set the debt-to-GDP ratio to reach 58.8 percent in 2025.

The 2023 fiscal deficit is expected to sharply fall to 58.2 trillion won from the 110.8 trillion won estimated for this year.

The proposal was endorsed at a Cabinet meeting, Tuesday. It will be submitted to the National Assembly for approval later.

“Improving fiscal soundness is extremely important because it is the last line of defense and safety valve for the economy,” Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said during a preliminary briefing before the press, Thursday.

He added that securing sound fiscal health is a daunting task amid soaring inflation, growth slowdown, plummeting financial markets and external risks that further complicate efforts to achieve an economic recovery.

In particular, Choo noted the expansionary fiscal policy embraced by the preceding administration resulted in a snowballing national debt that is estimated to be nearly 1,068.8 trillion won for this year and 1,134.8 trillion won in 2023.

“We must tighten out belt before it's too late to cope with growing economic uncertainties, and we have come up with the 2023 budget proposal under a principle of restoring financial soundness,” he added.

To draw up the budget, the government will restructure non-core expenditures instead of collecting more taxes.

Among the affected sectors will be culture, sports and tourism, social infrastructure and energy. Spending on SOC, for instance, will be slashed by 10.2 percent to 25.1 trillion won through the restructuring of spending and improving the efficiency of projects. State spending to cope with COVID-19 will also be cut by 2.4 trillion won to 4.5 trillion won.

The government, meanwhile, is still open to spending more to support vulnerable people and strategic industries.

For instance, it plans to earmark 31.6 trillion won to boost income and enhance the security of housing and jobs for low-income households.

The government plans to invest 6 trillion won for future-oriented technologies, 1 trillion won for the chip industry and 3.1 trillion won to cope with global supply chains.

The budget also reflects the government plan to raise monthly wages for conscripted sergeants in the military to up to 1.3 million won from the current 820,000 won.