The Lee Jae-myung government is reportedly considering a plan to set the expenditure growth rate for next year's main budget at around 8-9%. This marks a shift towards expansionary fiscal policy, in contrast to the austerity measures emphasized by the Yoon Suk-yeol administration.
According to relevant departments on the 24th, the Ministry of Economy and Finance plans to announce next year's budget shortly. It will be made public in the last week of August to meet the National Assembly submission deadline in early September. As the first main budget of the Lee Jae-myung government, it reflects a commitment to revitalize growth through fiscal input amid increasing concerns over low growth.
The Moon Jae-in administration maintained an expenditure growth rate of 8-9% for four consecutive years, starting with a 7.1% growth rate in the first year of its term in July 2018. The rates were 9.5% in 2019, 9.1% in 2020, 8.9% in 2021, and 8.9% in 2022. This was a preemptive stance on expansionary fiscal policy even before the COVID-19 pandemic.
The current government is expected to follow a similar trajectory. The current total expenditure is 673.3 trillion won based on this year's main budget. Adding 8-9% to that would increase next year's budget to around 730 trillion won. Although total expenditure has already risen to 702 trillion won after two supplementary budgets, a significant increase is anticipated for next year.
If the previous government significantly increased the welfare budget, this time the focus is expected to be on expanding growth potential. Research and development (R&D) and artificial intelligence (AI) sectors are representative.
On the 22nd, President Lee Jae-myung noted, "The R&D budget is structured at a level of 35.3 trillion won, showing an increase rate close to 20%." In the AI sector, finances will also be allocated to key projects such as humanoids, autonomous vehicles, autonomous ships, drones, AI home appliances, AI factories, and on-device semiconductors.
Budgets for regional balanced development to alleviate concentration in the metropolitan area and support for local currency initiatives are also expected to be expanded. Discussions are also occurring regarding welfare expenditures due to low birth rates and aging, as well as the possibility of an increase in defense spending. While meeting the level of 5% of GDP (approximately 132 trillion won) as demanded by the U.S. may be difficult, it is expected that a significant increase will occur in the context of the South Korea-U.S. alliance.
Ahead of a major expansion in expenditure, the government announced that it has undertaken the largest fiscal restructuring in history. Recently, the Ministry reported during a meeting at the Yongsan presidential office that it has saved a total of 27 trillion won, marking "the highest level of adjustment ever."
Even in a situation where fiscal conditions are not favorable, the background for returning to expansionary fiscal policy lies in the structural low growth risks of the Korean economy. Considering the reality that short-term and even mid-to-long-term growth rates are declining, the judgment is that fiscal policy must play a role as "a catalyst for growth."