The government's 10 trillion won-scale 'wildfire supplementary budget' is expected to inevitably require funding through the issuance of deficit bonds. This is because the global surplus from last year's tax revenue is significantly insufficient, and this year's revenue conditions are also expected to be tight. Although the government's supplementary budget proposal is focused on wildfire damage recovery, there is a possibility that it may be increased or followed by additional supplementary budgets during the process of seeking approval from the National Assembly.
Inevitable Deficit Bonds, Mobilizing All ResourcesGlobal Surplus Handling Plan to be Finalized Soon...Will Bank of Korea Surplus be Used?
According to the Ministry of Economy and Finance on the 31st, the global surplus, which is the remaining tax revenue after deducting expenditures and carryovers from total revenue, was only 2 trillion won last year. Of this, 400 billion won is the general account global surplus that can be used for the state's inherent finances. According to the National Finance Act, the general account global surplus can be used sequentially for local allocation tax and grant settlements, contributions to the public fund repayment fund, and national debt repayment, with the remaining amount available for use as supplementary budget resources. The government plans to use only a portion of the 400 billion won as supplementary budget resources, but the exact amount has not yet been finalized.
Another available resource is the Bank of Korea surplus. The Bank of Korea operates foreign currency assets annually to generate income and pays the government revenue the remainder after excluding the statutory reserve of 30%. According to the 2024 Bank of Korea annual report, the confirmed amount of government revenue payment by the Bank of Korea this year is 5.4491 trillion won. The government can include the Bank of Korea surplus as revenue or use it for other expenditures, including supplementary budgets. However, since downside risks that could worsen tax revenue conditions are expected to be significant this year as well, it is highly likely that the Bank of Korea surplus will be primarily used to cover tax revenue shortfalls.
In a situation where surplus funds such as global surplus and funds are insufficient, it seems inevitable to secure supplementary budget resources through the issuance of national bonds. During 2021 and 2022, when supplementary budgets were prepared twice a year to respond to the COVID-19 pandemic, the global surplus remaining in the treasury ranged from 9.13 trillion to 23 trillion won due to a tax revenue boom, and the surplus tax revenue was utilized. However, last year, the tax revenue shortfall exceeded 30 trillion won, and this year’s revenue outlook is also bleak, making fiscal conditions unfavorable.
An official from the Ministry of Economy and Finance said, "Considering the tax revenue situation, most of the supplementary budget resources will come from national bonds," adding, "Once the detailed projects to be included in the supplementary budget are decided based on the assessment of wildfire damage, we will specify the funding plan." The handling plan for the general account global surplus, which has been a major resource for supplementary budgets, is expected to be finalized after the Cabinet meeting next week.
10 Trillion Supplementary Budget Not for Economic Stimulus in Response to Wildfire Damage
'Scale Not Fixed' Speculation of Second Supplementary Budget
The government's move to implement a 10 trillion won essential supplementary budget is driven by concerns that the negative impact from wildfire damage could be greater than expected. Kang Young-gyu, spokesperson for the Ministry of Economy and Finance, said at a regular briefing held at the Government Complex Sejong in the afternoon, "Deputy Prime Minister Choi judged that the economic situation is serious ahead of the mutual tariff imposition in early April," adding, "(This 10 trillion won supplementary budget) is to address urgent matters immediately, and the most decisive factor is the wildfire."
When asked whether 10 trillion won is insufficient for economic stimulus, he explained, "(This supplementary budget) is not for economic response but to recover wildfire damage and resolve trade issues, and it was judged that some support for struggling small business owners should also be included."
He also stated that the supplementary budget details and total scale will be finalized after assessing the wildfire damage. However, due to significant disagreements between the ruling and opposition parties, it is uncertain whether it can be processed within April. The fourth supplementary budget in 2020 was submitted to the National Assembly on September 11 and passed in the shortest period of 11 days. A Ministry of Economy and Finance official said, "If the ruling and opposition parties agree to pass it quickly within April, we will prepare the supplementary budget proposal."
Since the government's 10 trillion won supplementary budget proposal is focused on wildfire damage recovery, political issues are expected to be largely excluded during the process of seeking National Assembly approval, and there is also a possibility that additional supplementary budgets will be prepared for items excluded this time.
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