Expenditure Restructuring Just One Month After Main Budget Execution? ... Ministry of Economy and Finance's Dilemma

Hong Nam-ki, Deputy Prime Minister for Economy and Minister of Strategy and Finance [Image source=Yonhap News]

[Asia Economy Sejong=Reporters Son Seon-hee and Lee Hyun-joo] The Ministry of Economy and Finance is expected to begin expenditure restructuring just over a month after executing this year's main budget. This is an inevitable task pushed by the political sphere's pressure to increase the supplementary budget (추경) amid limited capacity for additional deficit bond issuance. It is difficult to avoid criticism that this is a 'Josam-mosa' (a case of changing the means but not the end), as the supplementary budget was prepared citing 'budget shortage' from the beginning of the year, but the funds are actually secured by cutting the existing main budget.

According to the government and the National Assembly on the 8th, Prime Minister Kim Boo-kyum mentioned the possibility of increasing the supplementary budget by 14 trillion won during the National Assembly Budget and Accounts Special Committee the day before, which gave momentum to the National Assembly's discussions on the increase. Although Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki had maintained a 'no increase' stance, he seems to have stepped back in the face of indiscriminate attacks from both ruling and opposition parties ahead of the presidential election.

The National Assembly's Industry, Trade, Energy, Small and Medium Enterprises Committee immediately approved a supplementary budget that increased the government's proposal by a large 24.95 trillion won the day before. This includes paying small business owners quarantine support funds of 10 million won, more than three times the government's proposal of 3 million won. The Health and Welfare Committee also approved a supplementary budget increased by 15 trillion won compared to the government's proposal. The increased amount from these two standing committees alone reaches 40 trillion won. The National Assembly's Planning and Finance Committee is also expected to approve an increase in contingency funds on the same day.

The key issue is the funding plan. Prime Minister Kim left open the possibility of an increase on the premise of 'National Assembly agreement,' but repeatedly emphasized the need to derive a 'reasonable plan.' In a situation where interest rate hikes are anticipated, issuing tens of trillions more in deficit bonds, which have already exceeded 1,000 trillion won, could shock inflation and the government bond market. Since this could further stimulate already rising interest rates and cause an unexpected crisis due to a balloon effect, the government is also negative about issuing government bonds beyond last year's excess tax revenue range.

Ultimately, the realistically possible measure is expenditure restructuring. This is a part continuously demanded by the opposition People Power Party, and Prime Minister Kim also mentioned this the day before.

The opposition is gearing up to demand expenditure restructuring on a scale of up to 50 trillion won. Although excess tax revenue exceeding the government's estimate by about 10 trillion won occurred last year, about 40% of it goes to local grants according to the National Finance Act, and considering some government bond repayments, the actual 'usable' world surplus is only around 3 trillion won. Therefore, it is pointed out that large-scale expenditure restructuring must precede the supplementary budget increase.

However, from the Ministry of Economy and Finance's standpoint, it is a difficult position to have to restructure expenditures just over a month after the main budget execution has started. If the scale of expenditure restructuring grows to tens of trillions of won as demanded by the political sphere, it would mean the government itself admits that it recklessly prepared a super-large budget of 607 trillion won. Given the prolonged COVID-19 situation and ongoing economic uncertainties, large-scale expenditure restructuring from the beginning of the year is realistically not an easy issue.

Ryu Seong-gul, a member of the People Power Party and the National Assembly Planning and Finance Committee's secretary, said, "The executive branch knows better than anyone which parts of the 607 trillion won budget can be restructured," adding, "I believe the fiscal authorities can sufficiently prepare expenditure restructuring for lower priority spending."

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