[Weekly Review] Moon Administration's Final Year 'Super Budget'... Increased by 8.3% to 604 Trillion Won

Next Year’s Ultra-Super Budget of 604 Trillion Won Again

Jobs 31 Trillion · Youth Support 23 Trillion
National Debt Ratio Exceeds Half of GDP

Elderly Job 'Handout Welfare' Still Prevails

Prices Rise Highest in 9 Years
'Fragile Wallets' of Ordinary People See Social Insurance Fees Soar

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki announcing the 2022 budget proposal and the 2021-2025 National Fiscal Management Plan at the Government Seoul Office in Jongno-gu, Seoul, on the 31st of last month. Photo by Kim Hyun-min kimhyun81@

[Sejong=Asia Economy Reporter Moon Chaeseok] Next year's budget is set to increase by 8.3% compared to this year, reaching a scale of 604 trillion won. The national debt and the ratio of national debt to Gross Domestic Product (GDP) are expected to exceed 1,000 trillion won and 50%, respectively.

For the first time ever, a budget exceeding 200 trillion won has been allocated to the health, welfare, and employment sectors. More than 30 trillion won will also be invested in jobs.

Meanwhile, last month's inflation rate hit its highest level in nine years, and the government has decided to raise next year's employment and health insurance premiums for office workers, often referred to as the so-called 'Yurijap' (literal translation: 'glass wallet').

National Debt Soars to 1,068 Trillion Won

On the 31st of last month, the government set next year's budget at 604.4 trillion won, an 8.3% increase from this year's main budget of 558 trillion won. The total expenditure growth rate was 8.3%, higher than the total revenue growth rate of 6.7%, which is evaluated as the implementation of an 'expansionary fiscal policy' until the last year of the administration.

Accordingly, the increased debt, including 77.6 trillion won in deficit bonds, amounts to 112.3 trillion won. As a result, the national debt is projected to reach 1,068.3 trillion won by the end of next year. The government plans to submit this budget bill to the National Assembly on September 3 and stated that it will strive to have it passed by early December as stipulated by law.

31 Trillion Won for Jobs, 23 Trillion Won for Youth... Increasing 40,000 Direct Jobs to 1.05 Million

Next year's job budget is set at 31.3 trillion won, an increase of 1.2 trillion won from this year's 30.1 trillion won. The goal is to create 2.11 million jobs in both the public and private sectors.

The issue is that the government plans to increase the number of direct jobs, which are paid by taxes, by 40,000 from 1.01 million this year. A significant portion of these direct jobs are for the elderly, totaling 845,000 next year. This exceeds the pledge made by President Moon Jae-in in 2017 to create 800,000 elderly jobs during his term. Due to the nature of these public job projects, which are difficult to reduce once increased, they are expected to continue to burden public finances even after overcoming COVID-19.

The youth-related budget has been set at 23.5 trillion won, an increase of 3.3 trillion won from this year. Low-income youth will receive monthly rent support of 200,000 won for up to 12 months, and a new interest-free monthly rent loan capped at 200,000 won will be introduced. National scholarship support will also increase, with more than 1 million university students expected to benefit from 'half-price tuition' next year. To increase youth seed money, a new asset formation program will be introduced, where the government supports part of the savings or pays additional interest based on income. Furthermore, youth policy divisions will be newly established in the Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, Ministry of SMEs and Startups, and Financial Services Commission.

Prices Rise 2.6%... Highest Inflation Rate in 9 Years

Eggs are being sold at a large supermarket in Seoul. Photo by Mun Ho-nam munonam@

Meanwhile, inflation showed the largest increase in nine years. According to Statistics Korea's announcement on the 2nd, last month's Consumer Price Index was 108.29 (2015=100), up 2.6% from a year earlier. This is the first time in four years since January-May 2017 that the inflation rate has remained in the 2% range for five consecutive months. Last month's inflation rate (2.6%) is the highest since April 2012.

The problem is that not only the living cost index, including eggs, rose by 3.4%, but the core inflation rate (excluding agricultural products and petroleum products) also increased by 1.8%, marking the highest rise since August 2017 (1.8%). The core inflation rate has recorded a 1% range increase for six consecutive months. Last month's increase is the highest since August 2017. Core inflation excludes agricultural products and petroleum products, which are affected by seasonal factors and temporary shocks, allowing for a more accurate observation of the trend inflation flow.

Because of this, expectations are growing that the Bank of Korea will raise the base interest rate in October-November under the pretext of managing inflation and household debt. On the 3rd, Bank of Korea Governor Lee Ju-yeol and Financial Services Commission Chairman Ko Seung-beom agreed to jointly respond to financial imbalances, including household debt exceeding 1,800 trillion won, during their first meeting.

'Yurijap' Low-Income Workers' Social Insurance Premiums to Soar Next Year

Citizens visiting an Employment Welfare Plus Center in Seoul are heading to the consultation desk to apply for unemployment benefits. Photo by Hyunmin Kim kimhyun81@

Social insurance premiums, including employment and health insurance, are expected to rise further next year.

The Ministry of Employment and Labor decided to raise the employment insurance premium rate from 1.6% to 1.8%, a 0.2 percentage point increase, starting July next year. An office worker earning 3 million won per month will have to pay an additional 3,000 won monthly and 36,000 won annually in premiums. The rate will increase for the first time in three years since October 2019, when it was raised from 1.3% to 1.6% to strengthen coverage. The government pulled out the 'premium increase' card again as the employment insurance fund is expected to face a deficit of 3.2 trillion won by the end of this year.

Next year's health insurance premium rate will rise by 1.89% compared to this year. The average monthly health insurance premium for office workers will increase by 2,475 won. The Ministry of Health and Welfare announced at the 19th Health Insurance Policy Deliberation Committee that the health insurance premium rate will be raised from 6.86% this year to 6.99% next year, a 1.89% increase. Accordingly, the average monthly premium (employee's share) for workplace subscribers will rise from 130,612 won to 133,087 won, an increase of 2,475 won.

National Assembly Passes Amendment to Comprehensive Real Estate Tax Act... Single Homeowners with Market Value Over 1.57 Billion Won

[Image source=Yonhap News]

Meanwhile, on the 30th of last month, the National Assembly passed an amendment to the Comprehensive Real Estate Tax Act imposing the comprehensive real estate tax on single homeowners with homes valued over 1.57 billion won this year.

The amendment raised the additional deduction amount for single homeowners from 300 million won to 500 million won. As a result, single homeowners will receive a total deduction of 1.1 billion won, including the basic deduction of 600 million won and the additional deduction of 500 million won. The deduction amount is based on the official assessed price. A home with an official assessed price of 1.1 billion won corresponds to a market value of approximately 1.571 billion won when applying a 70% official price realization rate. This means homeowners with properties exceeding a market value of 1.571 billion won must pay the comprehensive real estate tax.

The ruling party estimated that if the comprehensive real estate tax threshold is raised to an official assessed price of 1.1 billion won, about 94,000 single homeowners would be subject to the tax this year. In the case of joint ownership by spouses, the existing system remains where each spouse receives a basic deduction of 600 million won, totaling 1.2 billion won. When converted to market value, the threshold is expected to be set at around 1.71 billion won.

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