Improving Income Inequality Focused on Low-Income Groups
Closing Education and Care Gaps
President Moon Orders "Expansionary Fiscal Policy"
[Asia Economy Reporter Jang Sehee] The budget scale for next year, the final year of the Moon Jae-in administration, is expected to exceed 600 trillion won for the first time on a total expenditure basis. The government views that the deepened polarization caused by the fourth wave of COVID-19 must be resolved through fiscal policy. Accordingly, next year’s budget will focus on inclusive growth to resolve polarization, while also investing large-scale resources in future responses such as the Korean New Deal and carbon neutrality.
Improving Income Inequality Centered on Low-Income Groups... Also Resolving Education and Care Gaps
According to the Ministry of Economy and Finance on the 15th, next year’s budget plans to focus on resolving polarization highlighted after COVID-19.
Significant budget will be allocated to support vulnerable employment groups including youth through the expansion of the National Employment Support System and to improve income inequality centered on low-income groups. Addressing learning loss and education and care gaps caused by the COVID-19 crisis will also be a key investment target.
There is also a forecast that the budget for resolving polarization, including customized income, housing, and care safety nets, will exceed 200 trillion won.
The government plans to allocate more than 30 trillion won next year solely for the New Deal 2.0 related budget. Carbon neutrality is also a key focus as the government prepares next year’s budget. In particular, a Climate Response Fund will be newly established next year to actively support greenhouse gas reduction.
The small business loss compensation budget, which was estimated at around 600 billion won before the fourth wave of COVID-19, is under consideration for a significant increase.
This is because a substantial part of the small business loss compensation due to this year’s business suspension and restriction measures will actually be executed next year. The Loss Compensation Act has been enforced since October, and it takes about three months to settle losses.
Government Considering Increasing Expenditure Next Year... Budget Expected to Exceed 600 Trillion Won
The government reported a draft of next year’s budget plan including these details to President Moon Jae-in last week. This report is a draft version of the government’s budget proposal for next year, which will be finalized through party-government consultations and submitted to the National Assembly early next month.
The government reportedly projected total expenditure for next year’s budget to be slightly below 600 trillion won. However, considering the resurgence of the fourth wave of COVID-19, it is reviewing increasing next year’s budget expenditure. The possibility of total expenditure growth rate rising to the 8% range cannot be ruled out.
Looking at total expenditure over the three years since the Moon administration, it increased from 428.8 trillion won in 2018 to 558 trillion won last year, with an average annual growth rate of 8.7%. At the current growth rate, next year’s budget would reach 603 trillion won.
In particular, the only case where the new year’s main budget was less than the previous year’s supplementary budget on a total expenditure basis was in 2010. The supplementary budget for 2009, during the global financial crisis, was 301.7 trillion won, but the 2010 main budget was set at 292.8 trillion won, 8.9 trillion won less. In all other cases, the main budget exceeded the supplementary budget.
The problem is that the increase in expenditure inevitably leads to an increase in national debt. This year’s national debt was 956 trillion won based on the main budget, but after the second supplementary budget, it rose to 963.9 trillion won. Considering the uncertain tax revenue outlook for next year, the era of 1,000 trillion won in national debt is increasingly likely.
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