The government’s 2018 budget calls for a 7.1 percent increase in spending to 429 trillion won, aligning it with President Moon Jae-in’s economic initiatives of focusing on income-led growth and creating jobs. The budget increase is higher than the government’s economic growth forecast of 4.5 percent and the highest net increase in nine years since the global financial crisis in 2009. 

As part of efforts to align President Moon’s so-called “people-oriented economy paradigm,” the 2018 budget plan increases 12.9 percent more spending in health, welfare and labor. In return, the budget calls for social overhead capital allocations to be slashed by 20 percent and negative growth for the third straight year for industry, SME and energy allocations. 

The 2018 budget plan was finalized at a cabinet meeting at the Seoul Government Complex in downtown Seoul, and it was submitted to the National Assembly on Sept. 1. The National Assembly is required to act on the 2018 budget bill by Dec. 2. 

The Ministry of Strategy and Finance (MOSF) allocated a combined 210 trillion won in mandatory expenditures appropriating 146.2 trillion won in health, welfare and labor categories and 64.1 trillion won to education. The figure represents 50.8 percent of the total budget, surpassing half of the total for the first time ever. 

The national fiscal management plan between 2017 and 2021, released on the same day, calls for raising the mandatory expenditures by an annual average growth of 7.7 percent to 53 percent in 2021. 

On the other hand, the government allocated 17.7 trillion won to the 2018 SOC budget, 4.4 trillion won lower than this year’s budget for the category. The industry, SME and energy category allocations stand at 15.9 trillion won, 100 billion won lower than this year’s, falling below the 16 trillion won threshold.   

Deputy Prime Minister-MOSF Minister Kim Dong-yeon said in a prior briefing session on the budget at the Government Complex in Sejong City on Aug. 24, “Korea is now in a situation in which sustainable growth cannot be attained without its economic and social structural changes.” 

He stressed expansionary fiscal policies, saying that fiscal expansion and fiscal soundness are both important, but if you pick up one, fiscal expansion will come first.” He was apparently referring to the government’s need to back up sustainable growth by releasing money from the national coffers despite fiscal loses. 

Asked about the criticism over the 7.1 percent jump in total expenditures, Deputy Prime Minister Kim said total revenues have soared 7.9 percent, and the expenditure amounts are high, but they can be supported by tax revenues. 

He noted that during the past one-and-a-half years, the national economy has grown, but those in the low-income 20 percent bracket have seen their income decline, so social bipolarization and income redistribution are tasks that need to be addressed for the sustainable growth of society. Kim said education and national defense, whose allocations have increased, seem to be allowed to receive giveaways, but they’ve undergone “restructuring” to implement 1.4 trillion won and 1.5 trillion won reductions, respectively. 

Deputy Prime Minister Kim predicted that the debt-to-GDP will not surpass 40 percent by 2019. Tax revenues are projected to rise by 5.5 Trillion won in 2018 through the revision of tax regulations. 

He said tax revenue surpluses are expected to stand at about 15 trillion won. Noting that 60 trillion won in tax revenue surpluses are projected to be spent on the implementation of state tasks, Kim said there is no problem in securing fiscal resources through tax revenue surpluses if the national economy does not decline.