The Yoon Suk-yeol administration submitted its first budget proposal for the year 2023 worth 639 trillion Korean won. The amount is an increase of 5.2 percent from the 2022 main budget while 6 percent decrease from the total annual budget of 2022 including the two rounds of revised supplementary budget. According to the government, the proposal is aimed at securing ‘fiscal soundness’ after 13 years of ‘expansionary fiscal policy’ including the previous Moon administration's average annual increase of 8.7 percent in government spending for the last five years.
It is apparently necessary to put on brakes on the sharp increase in government spending as the national debt at the year-end is expected to hover over 50 percent of the GDP for the first time in the nation's history. However, a decrease of 6 percent should not be considered a decent belt tightening as this year's record-high government expenditure is due to populist policies eagerly advertised during the campaigns of the presidential election and local elections. The total spending decrease is not even guaranteed if the proposal is revised by various demands from parties during the National Assembly review process and if demands rise again for revised supplementary budget to tackle economic recession next year.
To allay concerns, the Yoon administration and the ruling party should step forward to minimize or delay spending on its presidential campaign pledges and convince the people and the opposition party about the budget tightening. However, the government prioritized its populist campaign pledges for the 2023 budget allocation. Cases include raising monthly pay for soldiers up to one million won and offering ‘the monthly salary for parents’ of infant aged 12 months or less between 350,000 won and 700,000 won. It also cut the whole budget amount for local community currencies, which the opposition party vowed to secure. Those moves are nowhere near productive budget negotiations.
It is also uncertain whether tax may be collected as expected next year, considering economic slowdown triggered by global belt tightening. The Korean government expects an increase of 0.8 percent in tax revenue next year, but no one can be sure about the increase as the earnings are worsening for key companies and transactions in real estates and stocks are declining. On top of that, the government plans to cut taxes from next year worth 13 trillion won annually by revising laws regarding corporate tax, income tax and comprehensive real estate holding tax.
"The government has no option but to choose fiscal austerity because it has inflation problem to tackle," President Yoon recently said. If he is strong-willed for fiscal soundness as he purports, the president needs to focus more of his spending on ordinary citizens and the underprivileged struggling with livelihood vulnerability by saving budget for his 120 national agendas derived from his election campaign. Political parties should also help the government curtail unnecessary spending that it failed to cut on its own while restraining demands for excessive budget increase. Most importantly, the National Assembly must enact strict fiscal rules and strengthen the nation’s fiscal discipline that has been breaking down.