[2022 Budget Plan] Even with Reduced Spending by the Next Government... National Debt to Reach 1,409 Trillion Won in 5 Years

During Moon Jae-in Administration's 4 Years, Annual Average Spending Increased by 8%... Next Government to Limit Within 5%

[Sejong=Asia Economy Reporters Kim Hyun-jung and Son Sun-hee] The government will limit the total expenditure growth rate to within 5% starting from 2023. While the Moon Jae-in administration increased spending by more than 8% annually on average over the past four years, it believes that during the next administration’s term, the economy will return to a normal track, necessitating controlled spending. The national budget for 2025 is set at 691.1 trillion won, with the government aiming to maintain the budget in the 600 trillion won range for five years. However, the national debt ratio is expected to gradually rise, approaching 60% in four years.

According to the “2021?2025 National Fiscal Management Plan” announced by the Ministry of Economy and Finance on the 31st, the total expenditure growth rate will sharply decrease starting in 2023, when the next government drafts the budget. In 2023, the budget will increase by 5.0% from next year’s budget to 634.7 trillion won, and in 2024, it will expand by 4.5% to 663.2 trillion won. In 2025, the growth rate will be lowered to 4.2%, setting the expenditure scale at about 691.1 trillion won. If the plan proceeds as scheduled, the average annual expenditure growth rate from 2021 to 2025 will be 5.5%, but for the period of the next government’s term from 2022 to 2025, it will be about 4.5% annually.

This is a significant difference from the Moon Jae-in administration’s average annual expansion of 8.6% over the past four years. On the 27th, Vice Minister of Economy and Finance Ahn Do-geol explained at a pre-budget briefing, “We expect the economy to enter a normal trajectory in 2023 and have decided to gradually lower the fiscal expenditure growth rate to the 5% range,” adding, “We considered the economic situation and the era’s demands on fiscal policy.”

However, revenue is expected to increase more slowly compared to expenditure. The average annual growth rate of fiscal revenue from 2021 to 2025 is projected at 4.7%, which is below the expenditure growth rate. Fiscal revenue next year is expected to rise from 548.8 trillion won to 618.5 trillion won in 2025, including national tax revenue of 383.1 trillion won. National debt will increase to 1,408.5 trillion won by 2025, with the national debt-to-GDP ratio reaching 58.8%.

The “Fiscal Rules” that the government is pushing to legislate to control fiscal spending is expected to barely remain within the management range in its first year of implementation, assumed to be 2025. The fiscal rules aim to manage the national debt ratio to GDP at 60% or below and the integrated fiscal balance deficit at 3% or below, multiplying the excesses of these two criteria to ensure the result is 1 or less.

If the plan announced on this day is implemented, the fiscal rules result value will increase annually from 0.72 based on the 2022 main budget to 0.85 in 2023, 0.93 in 2024, and 0.98 in 2025, but will remain below the government’s benchmark of 1.0. However, if unexpected adverse events such as COVID-19 or natural disasters occur during the next government’s term, leading to supplementary budgets and tax revenues falling short of projections, it is highly likely that the benchmark will be exceeded immediately.

Professor Lee In-ho of Seoul National University’s Department of Economics said, “In terms of growth rate and speed, the deficit size is a major concern,” adding, “Especially in a situation where the credibility of expenditure details is lacking, there is an urgent need to establish mechanisms to comply with fiscal rules.” He further noted, “If things continue as they are, the next government will effectively inherit a debt burden exceeding 1,000 trillion won.” Professor Park Ki-baek of the Taxation Department at the University of Seoul expressed concern, saying, “The current government’s medium-term fiscal plan is problematic because spending is being carried out based on inertia.”

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