The National Assembly opens its regular session on Monday for a 100-day run, with its activities focused on deliberating on the administration’s 2013 budget request and inspecting government agencies. The schedule for the regular session is subject to negotiations between the two negotiating groups ― the ruling Saenuri Party and its rival, the Democratic United Party.
When a regular session starts, one of the issues of great concern to the administration is whether or not the legislature will approve its budget request by the Nov. 2 constitutional deadline. It is not unusual for approval to be delayed over bipartisan conflict until the final day of the fiscal year, Dec. 31.
There will be no such delay this time, if past experience is any guide. Instead, the legislature is expected to pass the budget request before Nov. 2 as it usually does in an election year. When the presidential election is scheduled for December, the rival parties cut short the time for deliberation for an early approval so that they can focus on their campaigns.
This does not mean that the legislature can afford to slacken its oversight on the budget, which is constitutionally required to be submitted by Oct. 2. On the contrary, greater scrutiny will be demanded, given the that the nation’s fiscal health is under threat. As growth is slowing, the administration is considering incurring a budget deficit next year.
The administration, which has had to stimulate growth on an expansionary fiscal policy in the wake of the 2008-09 Great Recession, has promised in the past to balance the budget in 2013. Now, it does not rule out the possibility of a budget deficit, as the slump is threatening to cut its earlier tax revenue projections.
In testimony before a committee of the National Assembly, Minister of Strategy and Finance Bahk Jae-wan recently said no decision had been made on whether or not to draft a balanced budget bill. He said the ministry would examine August and September economic indexes before making a final decision. “We highly value fiscal soundness, but we cannot hold onto a balanced budget no matter what.”
Indeed, growth is slowing as the economic conditions are worsening. In June, the administration lowered this year’s growth outlook to 3.3 percent, which now is seen to be unattainable. The year-on-year growth rate, which had stood at 4.2 percent in the first quarter of 2011, tumbled to 2.8 percent in the corresponding quarter of this year and 2.4 percent in the second quarter.
If a deficit is unavoidable, it needs to be minimized for the sake of public finances. But the ruling Saenuri Party does not appear to be paying much attention to fiscal soundness.
One such indication is the ruling party’s demand for an extra budget. It is putting pressure on the administration to draft an extra budget bill immediately so that its deliberations can start this month. It no doubt has the presidential election in mind, though it presents the worsening economic conditions and the latest typhoon damage to the economy as the rationale for an extra budget. However, the ruling party is misguided at least on two counts.
Firstly, the administration has already decided to spend 8.5 trillion won more on what it calls “fiscal investment.” The money will come from some of the funds that are placed outside of the legislature’s oversight, with its sources set to be unveiled later this month. The administration decided on this type of funding last month, ignoring a call for an extra budget.
In the face of mounting pressure for an extra budget from the ruling party, the administration proposes to increase the planned fiscal investment by 1.5 trillion won.
Secondly, an extra budget, if it were to be drafted now, would have little effect on the economy this year. Given time-consuming deliberations on the extra budget bill in the National Assembly, actual spending would start in November at the earliest. If so, it would make sense for the ruling party to incorporate its demands into the 2013 budget request.
The ruling party will be well advised not to waste any more of its political capital on an unlikely extra budget. Instead, it will have to help the administration achieve a budgetary balance as soon as possible.
