The government seeks to expand its spending for next year by 5.7 percent from this year to give the country's economy a much-needed jumpstart out of the prolonged slow recovery, the finance ministry said Thursday.
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(Yonhap) |
The government will ask the National Assembly to approve 376 trillion won ($361 billion) in spending for 2015, larger than 355.8 trillion won assigned for this year, according to the ministry. The sought amount is 8 trillion won more than what was initially proposed.
The proposal, which was endorsed at a Cabinet meeting on Thursday, will be submitted to the National Assembly by Tuesday next week. Under the Constitution, it should pass the parliament no later than Dec. 2.
The spending increase is higher than the 4 percent rise in the 2014 budget. It would also mark the largest on-year spending hike since 2009 when it grew 10.6 percent from a year earlier.
The bigger increase comes amid heightened worries that the economic recovery might be losing its momentum and that the country is falling into a prolonged phase of low growth.
The government is going after bigger spending despite gloomy revenue prospects, which could get worse if the economy does not pick up anytime soon.
Gross revenue in 2015 is estimated at 382.7 trillion won, up 3.6 percent, or about 13 trillion won, from this year. The sum, however, is less than 23 trillion won the government earlier expected to collect next year.
Policymakers, including finance minister Choi Kyung-hwan who took office in July, have been emphasizing the importance of the government's role in propping up the sluggish recovery. They have said that despite unfavorable revenue outlooks, the government will operate its macroeconomic policy in an "expansionary" manner.
"The economic situations remain very harsh, and our economy at present faces a crossroad between making a leap forward again or going through a phase of contraction," Bang Moon-kyun, vice finance minister in charge of budget affairs, told reporters in a pre-announcement briefing.
"When the economy goes bad, fiscal spending should play its role in turning the economy around. We should respond appropriately now in order to revive the economy and avoid a situation where we fail to join the ranks of advanced countries at the threshold," he added.
A large chunk of the spending was allocated to health, welfare and labor sectors. About 115.5 trillion won will be set aside for them, which is more than 30 percent of the total, according to the finance ministry. It is up 8.5 percent from the 2014 budget.
The requested budget for national defense and education was increased 5.2 percent and 4.6 percent to 37.6 trillion won and 53 trillion won for next year, respectively.
For social overhead capital, the government seeks to spend 24.4 trillion won, which is up 3 percent from this year. In particular, it asked for 16.9 trillion won to be spent on improving public safety, a response to a deadly ferry sinking in April which left more than 300 people dead.
The government expects to collect 221.5 trillion won in national taxes next year, 2.3 percent higher than this year. Income taxes are expected to rise 5.7 percent, but corporate taxes are projected to just inch up 0.1 percent.
In particular, tariff income is feared to dwindle 5.1 percent next year, caused by the strong local currency and lowered trade barriers due to free trade deals.
Less-than-expected revenue and the government's expansionary budget management may spell overall fiscal strain, which the government admits.
The government is projected to log 33.6 trillion won in fiscal deficit next year, which would represent 2.1 percent of gross domestic product. This would be higher than 1.7 percent estimated for this year.
The finance ministry said risking worsening fiscal deficit in the short term is "inevitable" to boost the economy, but the government will continue its efforts to keep its fiscal house in order over the long term.
"We drew up our budget plan on the belief that expansionary fiscal management is necessary even if it results in increasing the deficit," Bang said. "This is intended to create a virtuous cycle where an economic recovery helps boost income and stimulate business activities that eventually lead to more tax revenue and, in the longer term, help recover fiscal soundness."
To cover the spending hike for next year, the government plans to issue about 33 trillion won worth of state bonds.
Under its mid- and long-term fiscal management plan, also unveiled on Thursday, the government said it plans to lower its fiscal deficit ratio to 1 percent by 2018 by strengthening the fiscal "discipline" and by streamlining and improving the overall efficiency of government spending.
According to government projections, national tax revenue will likely grow by an annual average of 5.9 percent until 2018. The tax burden ratio is expected to inch down from 18 percent in 2014 to 17.5 percent next year but slowly rise in following years to come to 17.9 percent in 2018. (Yonhap)
