Gov`t to spend 70 pct. of 2012 budget in year`s first half

Seventy percent of this year`s national budget will be spent in the first half to minimize the impact from the eurozone sovereign debt crisis, high prices of international raw materials linked to Iran’s geopolitical risk, and Korea`s general and presidential elections.

Support for home mortgage loans for low-income households will also be expanded under the Strategy and Finance Ministry`s plans for 2012 announced Tuesday to President Lee Myung-bak.

○ Quickening budget spending

The government will spend a record 197.9 trillion won (172 billion U.S. dollars), 70 percent of this year`s budget of 282.7 trillion won (246 billion dollars), from January through June. The allocation for the first half is the same as in the same period of 2009, when the government expedited budget spending in response to the global financial crisis.

The potential crises forced the government to concentrate its budget spending in the first half of the year. Amid persistent European debt woes, the escalation of Iran’s nuclear program will likely send crude oil prices higher, while candidates of Korea`s general and presidential elections will make campaign pledges that burden the government`s fiscal situation.

A three-step plan will also guard against potential risk levels. In the first stage to be accompanied by higher market volatility, the government will strengthen monitoring and operate flexible macroeconomic policies.

In the second stage, which could see a slowing real economy and credit crunch, liquidity injections will be expanded and the amount of fiscal execution will be adjusted.

In the third stage, when the economy faces a drastic capital outflow and recession, the government will provide fund support for financial institutions, promote measures to boost foreign currency reserves, and facilitate fiscal spending.

Deputy Finance Minister Shin Je-yoon said, “We currently in the first stage, seeking to strengthen monitoring.”

○ Ease household loan burden

Other plans include alleviating the burden of Korea`s households from rising home rental prices.

"Bogeumjari loans," which are available for people who do not own a home and earn less than 25 million won (21,720 U.S. dollars) a year, will be expanded to the income bracket of between 25 million and 45 million won (39,096 dollars).

Under the existing system, people earning under 25 million won and who do not own a home can get loans at interest of half to one percentage points fewer than the lending rate applied to ordinary bogeumjari homes when they seek to buy homes priced at less than 300 million won (260,642 dollars) and smaller than 85 square meters.

The new measures will allow those earning between 25 million and 45 million won to borrow money for at interest half a percentage point lower than ordinary bogeumjari homes, or 4.6 to 4.85 percent. The support ceiling for this will be set at 1.5 trillion won (1.3 billion dollars).

For a first-time homebuyer earning less than 40 million won (34,752 dollars) in annual income and seeking to buy a home smaller than 85 square meters, the lending rate will be lowered to 4.2 percent from 4.7 percent until year`s end. People earning less than 50 million won (43,440 dollars) a year will also eligible for such loans.

Financial support will also go toward health insurance fees. A tax break of 3 million won (2,606 dollars) will be offered among home rental prices. Tenants who borrow money to pay higher home rental costs will also be eligible for tax breaks, which will be implemented in the year`s first half.

Under the existing plan, payment of more health insurance fees is required if people pay more home rental prices since they are counted as assets. The new plan will help prevent higher health insurance fees since debt grows due to rising home rental costs.

The government will also provide tax benefits for people subscribing to the "wealth creation fund" aimed at helping low and middle-income households. When an individual earning under 50 million won (43,440 dollars) per year sets aside money to the fund for more than 10 years, he or she will get a tax credit of up to 2.4 million won (2,085 dollars) as well as lower commission fees.

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