9/27 indepth : Korea to add to deficit for welfare and stimulus
The Korean government has unveiled a proposal for next year's budget plan which totals roughly 3-hundred-30 billion U.S. dollars.
And to support the president's campaign pledges about third is allotted for welfare programs.
That may be the largest allocation for health and welfare sector in the nation's history but due to tax revenue shortfall budgets for major welfare pledges including basic pension, and cutting college tuition were scaled back from the original plans.
But as much emphasis as the Park Guen-hye administration put on her welfare schemes, it also placed importance on stimulating the economy.
For this and more, we have Arirang News' Hwang Ji-hye joins us in the studio.
Ji-hye, what specific plans were laid out by the government that focus on boosting the economy?
A number of ways in fact.
The government had expected to significantly reduce its projected spending on social overhead capital, including on roads, schools and public parks, by 13 percent but only did so by a mere 4.3 percent, down to 21 billion dollars next year.
The government also wants to boost investment through its budget plan.
It calls for increased financial support for local small- and medium-sized companies by 12 billion dollars and plans to create a one-billion dollar fund for new growth engine industries.
The budget plan includes a more than 9 billion dollar rise in financial support for local exporters as well.
So, will these budget plans help the Korean economy regain its footing?
Experts say that remains unclear.
Despite government efforts to stimulate the economy, they say the budget draft for next year is mainly focused on welfare and that the total projected expenditures did not rise as much as last year.
"The government said that it wanted to raise spending by 4.6 percent next year, which is down from a more than five percent rise last year.
The budget plan would not have a major impact on fostering growth in the local economy, especially when the growth oulook for the global economy remains bleak."
These ambitious goals will also come at a time when the government will not have as much money to work with
The government said it planned to increase expenditures in 2014, but keep in mind that next year's government revenue is expected to drop zero.5 percent from 2013-- the first decline in four years.
If revenue does in fact drop, and the budget plans move forward as is, the government would end up running a fiscal deficit in 2014 of 1.8 percent of the country's GDP.
And as our Yoo Li-an reports, the national debt is going to surpass the worrying milestone of around 4-hundred-and-80 billion dollars next year.
There has been growing concern the country's sovereign debt is increasing at an alarming pace and the government's proposal for next year's budget envisages a further rise, stoking concerns about the country's fiscal health.
The finance ministry said on Friday that the government's debt is projected to surpass 500-trillion won or about 480-billion U.S. dollars next year, a rise of seven percent from this year.
It's an eight-fold increase since 1997 when the nation was hit by the Asian financial crisis, but officials say a deficit is inevitable next year because government spending is necessary to boost the still-moribund economy.
The nation's debt is now forecast to reach a record high of thirty-six.five percent of GDP,.. which appears to be at a manageable level compared to the OECD average of a hundred and eight percent.
But it's another story when taking into account debt held by state companies or payment guarantees offered by the government for various debt-financed projects.
That's because their combined liabilities far exceed the total government debt and their debt loads could potentially pose a serious risk if Korea faces an economic crisis in the future.
"The sovereign debt is at a manageable level for now,.. but if there is a sharp rise in social welfare costs or if tax revenues dwindle from worsening economic conditions, Korea could well follow the footsteps of the likes of Japan and southern Europe."
Government policymakers say they are working on measures to control the public debts but they have yet to present a convincing plan.
Yoo Li-an, Arirang News.
One option on the table to tackle deficiency in revenue is a tax hike but President Park has vowed during her presidential campaign that she wouldn't raise taxes.
So there will be cuts.
The government is working hard to scale back spending in the public sector, to reduce tax exemptions and to crack down on underground economic activity in order to boost its tax base.
But experts say the moves won't be enough to make ends meet, and that raising taxes could be an option down the road.
Hwang Ji-hye, thanks for the breakdown of the budget challenges ahead.
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