[2022 Budget Guidelines] Gradual Reduction of 'Corona Spending'... Expansionary Fiscal Policy Maintained

Government Finalizes Guidelines for Next Year's Budget Drafting and Fund Operation Plans
Comprehensive Review of Abnormal One-Time Expenditures... Conversion to Future Investment Resources
Budget Director: "Structural Adjustment of 12 Trillion Won Discretionary Spending Next Year"

Ando-geol, Director of the Budget Office at the Ministry of Economy and Finance (right), is announcing the budget formulation guidelines and fund management plan preparation guidelines at the briefing room of the Government Seoul Office Building on the afternoon of the 26th. March 30, 2021.
[Photo by Yonhap News]

[Sejong=Asia Economy Reporters Son Sun-hee and Moon Chae-seok] The government's budget formulation direction for 2022 emphasizes "fiscal normalization" alongside an expansionary stance. It announced a strong expenditure restructuring by thoroughly reviewing the temporary spending that was abnormally increased since last year to respond to the COVID-19 crisis and converting it into future investment resources. This is because, with COVID-19 vaccines being distributed worldwide, next year is expected to enter a general recovery phase.

In the "2022 Budget Drafting and Fund Operation Plan Preparation Guidelines" approved at the Cabinet meeting chaired by President Moon Jae-in on the 30th, the phased normalization of temporary expenditure projects stood out the most. In his opening remarks, President Moon said, "Our economy is recovering quickly and strongly," adding, "The current state of our economy shows sustained export growth, expanded investment, and consumer sentiment indices have recovered to pre-COVID levels, raising expectations for simultaneous growth in exports and domestic demand." He continued, "The government will further leverage this trend to advance the economic recovery timetable as much as possible and devote efforts to an inclusive recovery that minimizes COVID-19 inequality."

With expectations of entering a full-fledged economic recovery phase next year, the government emphasized "fiscal innovation" across expenditures, revenues, and fiscal systems in the 2022 budget formulation guidelines. It stated that projects temporarily increased during the COVID-19 crisis would be thoroughly reviewed, and funds, loans, and guarantees temporarily increased through policy financial institutions for emergency liquidity supply would be reduced. Along with this, employment retention subsidies and employment incentive projects, which surged during the COVID-19 phase, will be stabilized as employment conditions improve. The government also mentioned reviewing the appropriateness of consumption promotion projects such as temporary agricultural, fishery, cultural, and tourism voucher programs, as well as regional love and Onnuri gift certificates, which were implemented temporarily to boost domestic demand. Additionally, the budget for quarantine-related expenses, such as reserves for vaccine purchases, is likely to be reallocated elsewhere.

The government announced plans to reduce "discretionary spending," which it adjusts according to circumstances, by 10% next year. Ando-gul, Director of the Budget Office at the Ministry of Economy and Finance, said, "This year, we reduced about 10 trillion won through overall expenditure restructuring," adding, "Next year, we aim to achieve a 12 trillion won level of discretionary spending restructuring, which is a 20% increase from this year." He also stated, "Departments that actively participate in the restructuring process will be boldly incentivized, while penalties will be imposed on those that do not."

The government also plans to reduce or abolish contributions to international organizations with low execution rates or low national interest contributions. It will also review and reorganize subsidy, grant, and investment projects based on execution performance. Furthermore, it intends to cut four major recurring expenses directly used by public officials and institutions: special activity expenses, specific task expenses (department activity expenses), overseas travel expenses, and business promotion expenses.

Various funds that deteriorated during the COVID-19 crisis response will also be reorganized. A Ministry of Economy and Finance official said, "Employment insurance, small and medium enterprise promotion, and small business promotion funds have been depleted due to expanded support, and a temporary deterioration in these funds' revenues and expenditures is expected," adding, "We will balance revenues and expenditures in areas where losses were significant."

Despite announcing such high-intensity expenditure restructuring, some have pointed out the contradiction in the government still maintaining an "expansionary fiscal stance." Lee Tae-seok, a research fellow at the Korea Development Institute (KDI), said, "Rather than immediately stimulating consumption because the economy is in a recovery phase, the focus should be on 'price stability and macroeconomic stability,'" warning, "Excessive economic stimulus can cause price increases and financial instability."

Director Ando-gul emphasized, "Active fiscal management and total volume control are not conflicting," adding, "Fiscal innovation is essential for active fiscal management, and we must catch both rabbits."

This content was produced with the assistance of AI translation services.