Vice Minister Lim Ki-geun of the Ministry of Economy and Finance said on the 18th, "An active role for fiscal policy to respond to the current situation is necessary."
During a briefing on the 2025 supplementary budget at the government Sejong office, Vice Minister Lim noted, "We will fundamentally work on efforts like utilizing available funds and restructuring expenditures."
Vice Minister Lim also said regarding the fiscal rules that were pursued for enactment under the previous government but failed, "We need to reassess the feasibility and acceptance of the system."
Fiscal rules refer to laws that require maintaining national debt below a certain level. The previous government pursued the legislation of fiscal rules aimed at keeping the consolidated fiscal balance without social security fund deficit below 3% of gross domestic product (GDP).
The scale of this supplementary budget is 30.5 trillion won (expenditure + revenue), which is nearly 17 trillion won more than the first supplementary budget confirmed last month (13.8 trillion won). The ratio of the consolidated fiscal balance without social security fund deficit to GDP increased from 3.3% to 4.2%.
Vice Minister Lim emphasized the significance of quickly preparing the second supplementary budget. He stated, "Since the inception of the Lee Jae-myung government, we have promptly activated the emergency economic inspection task force (TF)," adding, "This supplementary budget plan was designed as the first answer to that."
He further stated, "Despite launching without an transition committee, we plan to submit the supplementary budget to the National Assembly on the 23rd, 20 days after the launch of the government."
In addition to Vice Minister Lim, the briefing included Yoo Byeong-seo, Budget Officer, Park Geum-cheol, Tax Policy Officer, and Kwon Dae-young, Secretary-General of the Financial Services Commission. The following is the Q&A session.
―The consolidated fiscal balance without social security fund deficit has exceeded 4% with this supplementary budget. What is the new government's position on the introduction of fiscal rules?
Vice Minister Lim Ki-geun believes it is important to perform the fiscal role while also maintaining fiscal sustainability. It is true that although the previous government emphasized fiscal soundness, they failed to uphold the target of a consolidated fiscal balance without social security fund to remain below -3% of GDP. Given the current economic conditions, rigid adherence to fiscal operations under -3% could lead to significant side effects. There is a need to reassess the feasibility and acceptance of fiscal rules.
―Will the Lee Jae-myung administration retract the push for legislation of fiscal rules?
Vice Minister Lim Ki-geun hopes that you understand his statement of 'we will reassess' in its literal sense. Whether the introduction of fiscal rules will be included in the new government's economic policy direction is something to watch a bit longer. At this point, it is difficult to provide definitive remarks on the contents and levels of fiscal management.
―How much do you evaluate the effects of this supplementary budget?
Vice Minister Lim Ki-geun expects significant indirect effects on the economic psychology of consumers, corporations, and citizens beyond the direct effects. Aiming to maximize growth in this year is a basic goal of the newly launched government. This goal will continuously be maintained throughout the tenure of the Lee Jae-myung administration.
As you all know, the economic situation and the difficulties faced by citizens are extremely severe. The national finances must serve as a catalyst for a virtuous cycle in the economy. While implementing the supplementary budget, it is true that the scale of the deficit and national debt relative to GDP has slightly increased. However, compared to past examples and abroad, it is not yet at a risky level. We will continue to work on sustainability of the finances.
―The nationwide recovery consumer coupon ranges from 150,000 to 500,000 won. What criteria were used to determine the amounts?
Vice Minister Lim Ki-geun noted that while considering the difficulties in the economy and the significant decrease in consumption, we must also take fiscal capacity into account. The decision was made after comprehensively considering past execution precedents.
(The support is through) coupons rather than cash to connect it to consumption. This way, it will be captured as sales, and it is expected to generate a virtuous cycle as it becomes income. If executed in cash, it is possible that such money does not circulate but becomes stagnant. Since 2021, the support has been provided not through cash payments, but via local love gift certificates, prepaid cards, and credit cards.
―Are there any restrictions on where the recovery consumer coupons can be used?
Vice Minister Lim Ki-geun stated that the recovery consumer coupons and local love gift certificates basically have the same range of use. They can be used widely, but industries deemed inappropriate such as gambling and entertainment will be restricted.
Yoo Byeong-seo said that the timing and usage of the coupons will be determined later by the task force.
―The issuance criteria for recovery consumer coupons state 'including health insurance premiums'; what other criteria are there besides health insurance premiums?
Yoo Byeong-seo explained that health insurance includes regional and workplace subscribers. Workplace subscribers mainly report income, while regional subscribers are also subject to asset assessments for health insurance premiums. To alleviate the controversy surrounding workplace subscribers being assessed solely on income, a threshold of 900 million won for tax base and 1.5 billion won for appraised value was established in 2020. Even if they meet the health insurance premium criteria, we included 'etc.' to account for various factors.
―Please explain in detail the five major discount coupons.
Yoo Byeong-seo explained that, for example, lodging can be done through the 'Here is' application (app), which will pop up a coupon that can be used. If the time and location match, it will be possible to download discount coupons and use them when making reservations.
Movies and sports will be discounted mainly for senior citizens using the facilities. However, which apps will be used still requires further review. (The issuance of coupons will be done on a first-come basis.)
―This supplementary budget includes the purchase and disposal of long-term overdue debts to support small businesses. Please explain in detail.
Kwon Dae-young stated that there are three types of small businesses and individuals. First are those who have been in arrears for about seven years and have lost their repayment capacity. For these individuals, we aim to eliminate their debts in principle and help them return to economic activity.
The second group consists of those facing challenges but still in arrears with principal and interest burdens. We will do our utmost to investigate and reduce their debts. The third group comprises those who are repaying diligently but feeling the burden of principal and interest. For them, we will consider reducing interest or extending maturity.
After about seven years in arrears, financial institutions will stop sharing credit information. We intend to collectively purchase debts under 50 million won scattered across financial sectors. The value varies depending on the vintage (of arrears); for example, good debts may be traded at 5 won or even 10 won for a face value of 100 won. We estimate it at around 5 won.
It is estimated that there are 16 trillion won in loans overdue for more than seven years. If purchased at 5%, it would cost 800 billion won. We are discussing that half will come from finances and the rest from financial institutions.
Individuals caught in long-term debts typically lack repayment capacity. This is a bold program to reduce debts as a one-off measure.
―Have the new government's national agenda tasks been reflected in this supplementary budget's expenditure projects?
Vice Minister Lim Ki-geun said there were two major principles for setting expenditure projects. First, they must effectively contribute to economic revitalization and the stabilization of citizens' lives. Second, they must be executable within this year. Under these principles, the selection of expenditure projects was made for the supplementary budget.
The process of selecting national agenda tasks has just begun. Among the expenditure projects included in this supplementary budget, some overlap with pledge projects exist, including special debt adjustment packages for small businesses and investments in artificial intelligence (AI).
―Has the government's approach shifted from sound finances to expansionary finances?
Vice Minister Lim Ki-geun stated that in the current situation, an active role for fiscal policy to respond to the economy is necessary. Efforts for sustainability of finances will fundamentally be carried out alongside restructuring expenditures and utilizing available funds.
Even the previous government emphasized both the sustainability of finances and the role of fiscal policy. The expression itself of 'austerity or expansion' seems inappropriate. We will do what is currently necessary for the government.
Moreover, I would like to add that the very act of organizing a supplementary budget inherently implies expansion. The assertion that there has been a transition from austerity to expansion should be judged when the main budget is formulated.
―Is there a possibility of a third supplementary budget?
Vice Minister Lim Ki-geun stated that the fundamental goal of the newly launched Lee Jae-myung government is to improve the economic situation as soon as possible so that a third supplementary budget will not be necessary to alleviate citizens' difficulties and pains.
―What projects are targeted for expenditure restructuring?
Vice Minister Lim Ki-geun noted that if we use government bonds to cover the supplementary budget fundraising, it would burden the citizens, so we examined whether restructuring expenditures or utilizing excess fund resources is possible.
There have been changes in situational conditions and shifts in priorities. We have restructured projects that would not be executed within the year. Specifically, this includes the UN (United Nations) assessment fees. The anticipated share was considered when setting up last year's budget, but it has since been confirmed this year. Execution occurs according to the confirmed amount, thus this aspect was restructured.
There is also a budget that the government adjusts in conjunction with the increase in university tuition fees. Many universities raised tuition considerably at the beginning of the year, leading to reductions in government support.
The contract procedure for the New Airport in Gadeokdo has been suspended. It has become practically difficult to advance construction, so it has been included in some expenditure restructuring. However, projects like access roads to the New Airport that need to continue will be carried out as originally scheduled with no reductions. The goal was not to set a target to reduce certain aspects of the budget but to assess based on execution within the year.
Yoo Byeong-seo stated that sales of eco-friendly cars and electric vehicles have decreased due to recent fire incidents, resulting in budget cuts. The North-South fund has also not been executed at all during the past six months this year. We have made some cuts but are uncertain how it will proceed in the second half.
―With significant revenue shortfalls over the past two years, why has there been no revenue adjustment until now? What is the reason for this adjustment now?
Vice Minister Lim Ki-geun explained that because the revenue adjustments were handled internally by the government without going through the supplementary budget, there were severe conflicts when the budget was accepted by the National Assembly. This also incurred social costs. Considering this, we determined that it would be appropriate to make the revenue adjustment this time.
―Please explain the 10.3 trillion won revenue adjustment by revenue category.
Park Geum-cheol explained that there are six revenue categories. The largest is corporate tax. The corporate tax was received based on the previous year's performance in April, but the actual figure was slightly lower than we had anticipated. We have reflected 4.7 trillion won.
Value-added taxes were also reflected at 4.3 trillion won. Due to various uncertainties, private consumption has not been good. The traffic tax, individual consumption tax, and education tax, collectively referred to as the fuel tax, amount to 2.3 trillion won.
An additional positive factor is inheritance tax. There were several cases of high-value taxpayers passing away around March and April, resulting in an additional reflection of 900 billion won.
―The issuance of government bonds will nearly reach 20 trillion won due to this supplementary budget; will there be any issues with market absorption?
Vice Minister Lim Ki-geun stated that demand in the government bond market is quite solid at the moment. Market participants seem to have expected large-scale supplementary budgets of around 20 to 30 trillion won along with significant government bond issuances since the beginning of the year. Current government bond interest trends already reflect these expectations.