The South Korean government unveiled its budget proposal for the next fiscal year on September 1, amounting to 820.9 trillion won, a record high that represents a 12.8% increase (93 trillion won) over this year's main budget. The surge in national tax revenue, which exceeded 194 trillion won due to a semiconductor boom, enabled the formulation of this super budget.
There are valid points in the government's intention to invest boldly in future growth drivers such as semiconductor and AI sectors, aiming to boost potential growth rates and alleviate polarization. However, given the unusually large increase in spending, it is crucial to adopt a balanced approach that also considers the sustainability of public finances.
The government's decision to allocate a significant portion of the increased tax revenue to establish a 162.3 trillion won 'Future Response Fund' is reasonable. Considering the volatility of tax revenue due to the semiconductor industry's cyclical nature, the idea of reserving funds for future investments and shock absorption rather than depleting them during a boom is worth noting.
However, the proposed amendment to the National Finance Act, which would allow changes to the fund's major expenditure items by presidential decree within a 30% limit, requires more detailed discussion during the National Assembly's review process. Finding a balance between the practical benefits of rapid fiscal response and the principle of legislative budget control is essential.
Investments in future growth foundations, such as youth support (43.3 trillion won, up 53.5%) and semiconductor and AI infrastructure (21.3 trillion won, up 97.2%), are timely. However, with an increase in cash welfare expenditures, such as additional payments for the bottom 30% of basic pension recipients, it would be prudent to clarify priorities between future investments and transfer payments for greater fiscal efficiency.
The government also announced plans for a 107.6 trillion won expenditure restructuring. However, it is important to note that a significant portion of the savings (69 trillion won) will come from adjustments to mandatory expenditures, such as the abolition of the local education finance grant's linkage to domestic tax revenue and changes in grant calculation methods. A thorough examination of the impact on local and educational finances, separate from discretionary expenditure reductions (38.6 trillion won), is necessary.
There are also long-term considerations. The government projects an average annual expenditure increase of 8.4% until 2030, anticipating total expenditures to reach 1,005.2 trillion won. This plan is based on a somewhat optimistic forecast of a 13.4% average annual increase in national tax revenue. Given the cyclical nature of the semiconductor industry, it is essential to manage finances with the understanding that the current boom may not last as expected. The forecast for a -0.1% improvement in the management fiscal balance next year also heavily relies on the one-time nature of the semiconductor tax revenue boom.
Budget proposals are always contentious, as it is impossible to simultaneously achieve growth and fiscal soundness. Therefore, it is necessary to persuade and reach consensus on the validity of the government's policy objectives during the budget review process. This is why the law mandates that government proposals undergo legislative scrutiny.
At this point, it is clear that South Korea's absolute challenge is to secure future growth drivers and alleviate polarization. It is also important to reduce the debt burden that will be passed on to future generations. The ball is now in the National Assembly's court. Over the next three months, both ruling and opposition parties must collaborate to ensure that the proposed budget achieves its intended effects while maintaining strict fiscal discipline. Productive discussions should focus on enhancing oversight mechanisms for the Future Response Fund and reassessing expenditure priorities during the National Assembly's review process.
* This article has been translated by AI.
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