Speed Adjustment in Ultra-Expansionary Fiscal Policy, Emphasis on 'Fiscal Innovation' in Next Year's Budget... Moon Jae-in's New Deal Disappears

Ministry of Economy and Finance Announces '2023 Budget Proposal Preparation and Fund Operation Plan Guidelines'

[Asia Economy Sejong=Reporter Kwon Haeyoung] The '2023 Budget Draft Preparation and Fund Operation Plan Guidelines (Budget Draft Preparation Guidelines)' announced by the government on the 29th indicate that the ultra-expansionary fiscal policy that continued throughout the Moon Jae-in administration will be halted, and the next Yoon Seok-yeol administration may enter a phase of 'speed adjustment' in government spending. It is analyzed that the intentions of President-elect Yoon's side, which has maintained a critical stance on the deterioration of fiscal soundness, are reflected.

The Ministry of Economy and Finance named four major investment focuses in next year's budget draft guidelines: ▲Firm economic leap ▲Consolidation of the foundation for livelihood stability ▲Expansion of future investment ▲National safety and economic security. Fiscal innovation tasks include ▲Restructuring fiscal expenditures ▲Reducing discretionary spending by 10% ▲Discovering new revenue sources and strengthening fiscal management ▲Implementing open finance.

One notable point is that the 'Korean New Deal,' which was included in the 2022 budget draft guidelines, has disappeared. Regarding this, Choi Sang-dae, Director of the Budget Office at the Ministry of Economy and Finance, explained, "Although the explicit term 'Korean New Deal' does not appear, it is embedded in the budget draft guidelines," adding, "However, considering the original intent, execution status, outcomes, and possible changes in future policy conditions, some modifications, supplements, and developments are expected."

Detailed fiscal innovation measures include normalization of temporary COVID-19 expenditures and sunset projects, 10% reduction in discretionary spending, efficiency improvement of government resources such as consolidation and abolition of similar funds, and institutionalization of fiscal rules for medium-term fiscal management. The scale of discretionary spending reduction is expected to be around 10 trillion won annually.

The government's shift in budget draft guidelines from last year's 'active fiscal management' and 'fiscal innovation' to this year's 'necessary fiscal role' and 'comprehensive fiscal innovation' is analyzed to reflect the intentions of President-elect Yoon's side, which has maintained a critical stance on the deterioration of fiscal soundness throughout the current administration's term. In fact, government spending and national debt have rapidly increased since the Moon administration began in May 2017.

The budget increase rates based on the main budget were 7.1% in 2018, 9.5% in 2019, 9.1% in 2020, 8.9% in 2021, and 8.9% in 2022. According to the '2021-2025 National Fiscal Management Plan' announced by the government last year, next year's budget is to be prepared with a 5.0% increase. This means the 2023 main budget size is expected to be around 638 trillion won.

National debt is also increasing sharply. National debt recorded 660.2 trillion won in 2017, 680.5 trillion won in 2018, 723.2 trillion won in 2019, and 965.3 trillion won in 2021. This year, including the first supplementary budget, it is expected to surpass 1,000 trillion won for the first time at 1,075 trillion won. The government forecasts that next year's national debt will reach 1,175.4 trillion won.

Some speculate that the pace of fiscal deficit and national debt increase will not significantly slow down for a while even after the new government takes office. Although President-elect Yoon has emphasized expenditure restructuring, if a second supplementary budget of about 50 trillion won is implemented after inauguration and pre-election pledges involving cash support are not selectively adjusted, the budget size for this year could cautiously be expected to swell to around 650 trillion won.

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