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2007 Budget May Rise to 239T Won

Posted September. 09, 2006 06:14,   


Next year’s budget (based on total expenditures) is likely to be approximately 239 trillion won, which is six to seven percent higher than this year.

Expenditures in welfare and national defense will increase in large numbers, so in order to offset the lacking revenues, the government will have to issue large amounts of government bonds.

It is also expected that within the National Assembly, there will be accusations that this budget is a “good will” budget, set in consideration of the next presidential election.

Expanded Budget Based on Optimistic Prospects-

On September 8, the Ministry of Planning and Budget held a consultation meeting with the Uri Party at the Assembly building and discussed the 2007 budget.

The ministry predicted that next year’s growth rate will be lower than this year (approximately five percent), and was estimated to be 4.6 percent. Thus, revenues (the sum of budget and funds) will be set at 252 trillion won, up by seven percent from this year, and total expenditures will be set at 239 trillion won, which shows a six to seven percent increase.

Director Lee Yong-geol from the Ministry of Planning and Budget explained, “We took the estimated growth rate and the two percent inflation rate (based on the Gross Domestic Product-GDP- deflator) into account and set a cyclically neutral budget balance.

However, most economic experts are concerned that the government overestimated next year’s growth rate and that accordingly, this budget would be too big. Recently, the Korea Economic Research Institute (KERI) estimated next year’s growth rate at 4.1 percent.

Bae Sang-geun, a researcher at KERI, said that if the budget is based on an overly optimistic outlook, it would be difficult to collect enough taxes in the future.

Welfare, Defense Budgets Greatly Increased-

The government will increase the welfare budget by 10 percent to 61 to 62 trillion won, compared to from this year’s budget of 56 trillion won. The budget for establishing social safety nets, a strategy against low birth rate, and the aging population has increased the most.

The national defense budget will include the amount needed for national defense reform and will increase by nine percent to 24 to 25 trillion won next year, from 22.5 trillion won this year. North and South Korea relations have been cooling, but the budget concerning the government’s projects toward North Korea will remain around the same amount, with about 650 billion won set for the South-North Cooperation Fund.

The R&D budget will increase from 8.9 trillion won this year to nine to 10 trillion won next year, but its growth rate compared to the previous year will decrease from this year’s 14.2 percent to eight or nine percent next year.

Oh Mun-seok, managing director of LG Economic Research Institute, said, “The effect of increasing expenditure in welfare is only temporary. Therefore, investments should be increased in areas where growth would be stimulated and the economy revitalized, such as Social Overhead Capital (SOC) and construction.”

Government Bond Issue Expected to More than Double-

The Ministry of Planning and Budget explained that nine trillion won worth of government bonds, similar to this year’s 9.3 trillion won, will be issued next year to offset the accounting deficit.

Consequently, the amount of bonds issued by the current government will be 31.6 trillion won by the next year. This means that the volume of bonds will have doubled in comparison to the figure right before the current administration in late 2002.

The current administration will not be able to avoid criticisms of its overspending and leaving a large burden on the future generation.

The government also expected that next year Korea’s administration balance, which reflects the country’s finances (the fiscal account balance subtracted by the social welfare fund such as the national pension fund), will record a deficit of 1.5 percent (14 trillion won) of the GDP. This comes after this year’s deficit of 14.9 trillion won, 1.7 percent of the GDP. There are voices saying that Korea has passed its age of maintaining a balanced fiscal account.

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