The government is set to implement a $50 billion spending restructuring for next year. This follows a $27 billion restructuring last year, with the aim of reallocating the funds to artificial intelligence (AI), future industries, and public welfare.
However, the inclusion of mandatory expenditures, such as pensions, welfare, and local government grants, which are legally mandated, raises questions about the feasibility of actual cuts. Without legislative amendments, significant reductions are unlikely, making the success of this restructuring dependent on the legislative process rather than just budget formulation.
According to the Ministry of Strategy and Finance on July 27, the ministry has requested that each department prepare plans to reduce discretionary spending by about 15% and mandatory spending by about 10% during the budget request process. Approximately 10% of all projects are to be reviewed for elimination or improvement, and temporary or sunset projects are to be terminated as a rule. Similar and redundant projects are also targets for consolidation.
The government aims to secure around $50 billion through this restructuring, nearly doubling last year's restructuring amount of $27 billion.
Hong Kyung-min, Minister of Strategy and Finance, stated at an open forum on spending restructuring last month, "This is the year to undertake painful restructuring. Reducing existing budgets is a very challenging task, but the Ministry of Strategy and Finance will take the lead to ensure it is accomplished." He emphasized the goal of achieving a 15% reduction in discretionary spending, a 10% reduction in mandatory spending, and the elimination of 10% of projects through a comprehensive review of all financial projects.
Unlike discretionary spending, mandatory spending is difficult to reduce solely through budget proposals. This is because payments for the National Pension, basic pensions, various welfare benefits, local government grants, and local education financial grants are all legally mandated. Even if the government sets reduction targets, actual cuts are challenging without amendments to the relevant laws.
The interests involved are complex. Since welfare beneficiaries, local governments, and related industries will be affected, significant challenges are expected during the National Assembly's discussions. Items directly related to local finances, such as local government grants and education grants, are particularly sensitive topics for reform discussions. The Ministry of Strategy and Finance has been coordinating with the Ministry of Education regarding education grants but has yet to reach a conclusion.
There are also concerns that 'accounting adjustments' may occur during the budget formulation process to meet restructuring targets. This could involve delaying project execution or increasing local financial burdens rather than actually eliminating projects. Another common method mentioned is reducing existing projects only to rename them as new projects or shifting general account projects to fund, loan, or investment projects.
The government plans to focus the funds secured through this restructuring on enhancing growth drivers and stabilizing public welfare. Once the budget proposal is submitted to the National Assembly, details of the restructuring by department will also be disclosed. It is expected that the budget review process will reveal how many projects were actually eliminated or consolidated, as opposed to merely shifting accounting or delaying execution.
* This article has been translated by AI.
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