[2023 Budget] First Budget Increases 5.2% to 639 Trillion Won... Choo Kyung-ho "From Wasteful to Sound Fiscal Management"

[Asia Economy Sejong=Reporter Kim Hyewon] The first budget of the Yoon Seok-yeol administration was set at 639 trillion won, a 5.2% increase from this year's main budget. The government is shifting its fiscal policy from the expansionary stance of the Moon Jae-in administration's five years to sound fiscal management, securing finances through a record-high 24 trillion won in expenditure restructuring, focusing on implementing Yoon's national agenda and supporting public welfare.

On the 30th, the government held a Cabinet meeting and approved the '2023 Budget Proposal,' deciding to submit it to the National Assembly on the 2nd of next month.

The government prepared next year's budget at 639 trillion won, a 5.2% increase compared to this year's main budget (607.7 trillion won). The total expenditure growth rate in the first year of the Yoon administration's budget formulation is about 60% of the Moon administration's average rate (8.7%) during 2018-2022, marking the lowest figure in six years since 2017 (3.7%). This is based on the main budget, and compared to the second supplementary budget, it represents the first time in 13 years since 2010 that the national finances have been reduced by 6% in a single year.

The reason the new government firmly shifted to sound fiscal management in next year's budget is due to the rapid increase in national debt during the COVID-19 recovery process and the urgent need to secure a fiscal safety net amid a complex economic crisis. Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho pointed out, "Continued expansionary fiscal operations have rapidly worsened the fiscal balance, and national debt is approaching 1,070 trillion won, which is 50% of GDP. Concerns about our fiscal soundness, which had been a strength in international credit ratings, are growing." He added, "The vigilance regarding fiscal soundness and sustainability is higher than ever, and a shift from loose to sound fiscal management is essential for responsible fiscal operations for future generations."

With a 5.2% increase in total expenditure next year, available resources increased by 31 trillion won compared to the previous year, but excluding local transfer funds such as local allocation tax and local education grants (22 trillion won), the central government's usable budget is about 9 trillion won. The shortfall was secured through expenditure restructuring worth about 24 trillion won, more than twice the usual amount (around 10 trillion won), securing a total fiscal capacity of 33 trillion won.

As a result of this shift to sound fiscal management, the managed fiscal balance deficit next year is expected to be 58.2 trillion won (2.6% of GDP), nearly half of this year's estimated 110.8 trillion won. Although the national debt will increase to 1,134.8 trillion won, the national debt ratio is expected to remain below 50% at 49.8%.

According to the '2022-2026 National Fiscal Management Plan' confirmed along with the budget proposal on this day, the Yoon administration plans to keep the total expenditure growth rate at an average of 4.6% annually during this period. The managed fiscal balance relative to GDP is targeted to improve from the -5% range (reflecting the second supplementary budget) to the -2% range, and the national debt ratio is to be managed within the mid-50% range. However, despite efforts to strengthen fiscal soundness, national debt is expected to exceed 1,300 trillion won by 2026.

Next year's budget focuses on Yoon administration's 110 national agenda tasks, as well as social safety net-related areas for low-income groups and socially vulnerable populations. Among the 12 core tasks, budgets were allocated for building a robust social safety net (31.6 trillion won), strengthening tailored protection and support for socially vulnerable groups (26.6 trillion won), and comprehensive support for youth asset formation, housing, and employment (24.1 trillion won). Additionally, 13.1 trillion won was allocated to improve military personnel working conditions and establish a world-class veterans system, one of President Yoon Seok-yeol's campaign pledges.

In key sectors such as health, welfare, and employment (total expenditure growth rate 4.1%), the median income standard was raised to a record high of 5.47%, and basic living security support was expanded to 2.4 trillion won by increasing the maximum livelihood benefit for a family of four from 1.54 million won to 1.62 million won per month. Also, 200 billion won was allocated to expand the basic property deduction to rescue 48,000 households at risk of losing basic living security due to rising official property prices.

The social insurance premium support threshold was raised from 120% to 130% of the minimum wage, adding support for 278,000 more people. Disability allowances were increased by 50% from 40,000 won to 60,000 won for the first time since 2015, costing 72.6 billion won, and all severely disabled persons with income below 50% of the median income will receive 50,000 won monthly for commuting expenses.

To improve housing for 15,000 households living in vulnerable residences such as semi-basements and small rooms, interest-free loans for deposits were introduced, and up to 50 million won will be supported if they move to private rental housing. To alleviate youth housing difficulties, 54,000 new cost-price and first-home near subway station houses will be supplied next year alone. The scale of discount coupons for agricultural, livestock, and fishery products was expanded more than twofold from 59 billion won to 169 billion won.

The defense budget (total expenditure growth rate 4.6%) will increase by 2.5 trillion won from 54.6 trillion won to 57.1 trillion won. In particular, soldier living conditions will be improved with 6.2 trillion won spent on raising soldier pay, including social advancement support, from 820,000 won to 1.3 million won per month next year, and increasing meal costs from 11,000 won to 13,000 won per day. On the other hand, budgets for industry, small and medium enterprises, and energy (-18%), SOC (-10.2%), and culture, sports, and tourism (-6.5%) sectors were reduced.

As part of intensive restructuring, the government decided that ministers and vice ministers will return 10% of their salaries, and salaries for grade 4 and above will be frozen. Only public officials at grade 5 and below will receive a 1.7% raise. Deputy Prime Minister Choo said, "We will also accelerate institutional reforms such as legislating fiscal rules, strengthening performance management, and reforming education grants."