The 'Opposition-Reduced Budget Bill', which cut 4.1 trillion won from the government's budget for next year, was passed in a plenary session of the National Assembly on the 10th. As negotiations between the ruling and opposition parties ultimately collapsed, there is a growing possibility that discussions on the supplementary budget will soon begin in earnest. Experts warn that political conflicts and uncertainties in fiscal management could further complicate discussions on the supplementary budget.
The reduced budget bill passed by the National Assembly this day cut 4.1 trillion won from the original government proposal, including significant reductions in the reserve fund of 2.4 trillion won, government bond interest repayments of 500 billion won, and specific expenses for prosecutorial affairs of 50.7 billion won. The 'Daewanggorae Project' for deep-sea gas drilling in the East Sea, considered one of the core projects of the Yoon Suk Yeol administration, also saw a significant cut from 50.6 billion won to 49.7 billion won.
The Democratic Party initially announced a plan to further cut the budget by an additional 700 billion won, but conscious of public opinion, they submitted a revised bill not including this proposal in the plenary session. The reduced budget bill that passed the plenary session is expected to be recorded as the first case in constitutional history where a budget was handled led by the opposition without a bipartisan agreement.
With the passage of the reduced budget bill, the government is likely to attempt to restore the cut budget through supplementary budget formulation early next year. Concerns arise especially because the reserve fund, which is essential for adapting to changes in domestic and international economic conditions and responding to emergencies, faces significant challenges in fiscal management due to the cuts.
Choi Sang-mok, Deputy Prime Minister and Minister of Strategy and Finance, emphasized the negative impact this reduction bill could have on fiscal management, saying, "If the reserve fund is insufficient, our ability to respond to domestic and international uncertainties is greatly weakened."
Within the Democratic Party, the necessity for a supplementary budget is also being considered. This is due to the need to compensate, through a supplementary budget, for the district budgets cut from the main budget and the so-called 'Lee Jae-myung-labeled livelihood budget', which supports local currency.
However, the Ministry of Strategy and Finance maintains that it's not needed immediately. A ministry official noted, "A supplementary budget can only be pursued when the conditions stipulated by the National Finance Act are met," and added, "The passage of the reduced budget bill alone does not warrant an immediate review of a supplementary budget."
According to Article 89 of the National Finance Act, a supplementary budget must meet conditions such as ▲ war or large-scale disasters ▲ changes in domestic and foreign conditions like economic recession and mass unemployment ▲ mandatory expenditure increases mandated by law. However, if the cut budget directly affects people's livelihoods, discussions on the supplementary budget are expected to resurface amid political pressure.
Some experts suggest that pursuing a supplementary budget could lead to economic shocks from increased issuance of deficit bonds. The scale of next year's government bond issuance is already set at a record high of 201.3 trillion won, and additional bond issuances could lead to an oversupply of bonds. This may raise government bond interest rates and cause instability in the bond market. A bond market insider pointed out, "If supplementary budget-related bond issuance raises interest rates, the cost of capital procurement for corporations and households may increase, potentially diminishing the economic stimulus effect."
Experts worry that if a supplementary budget is used to cover budget shortfalls, economic responses could be delayed. This is because delays in the supplementary budget can prolong the gap in livelihood budgets. Seok Byeong-hoon, a professor of economics at Ewha Womans University, noted, "Fiscal policy has a greater time lag in execution compared to monetary policy, so even if a supplementary budget is pursued, it takes considerable time for actual effects to appear," adding, "In a situation of increased political uncertainty, it's imperative to closely examine whether pursuing a supplementary budget is the right choice."
On the other hand, Woo Seok-jin, a professor of economics at Myongji University, stated, "The reserve fund tends to be set excessively larger than usual, so even if reduced, the economic impact is limited," addition that "when a new government takes office, it inevitably has to adjust the supplementary budget to fit the economic situation."