Next Year's Budget Around 630 Trillion Won... Slight Easing of Expansionary Fiscal Policy

Government Approves '2023 Budget Formulation and Fund Operation Plan Preparation Guidelines'

Choi Sang-dae, Director of the Budget Office at the Ministry of Economy and Finance, is announcing the 2023 budget formulation guidelines and fund operation plan preparation guidelines on the morning of the 25th at the briefing room of the Ministry of Economy and Finance in Eojin-dong, Sejong City. 2022.3.29 [Photo by Yonhap News]

[Asia Economy Sejong=Reporter Son Sun-hee] Following the COVID-19 crisis, the government, which had maintained an expansionary fiscal policy, is expected to focus on ‘fiscal innovation’ next year and undertake strong expenditure restructuring. Accordingly, the budget size for next year is expected to be set based on a 5% increase rate, lower than this year’s growth rate of 8.9%, reaching around 630 trillion won. The government also plans to actively pursue fiscal expenditure restructuring to establish fiscal sustainability.

On the 29th, the government approved and finalized the ‘2023 Budget Draft Preparation and Fund Operation Plan Guidelines’ containing these details at the Cabinet meeting. In accordance with the National Finance Act, it will be notified to all ministries by the end of this month. Each ministry must submit its budget request for the next year to the Ministry of Economy and Finance by the end of May. However, additional supplementary guidelines are expected to be delivered around early May, coinciding with the new government’s inauguration.

Total expenditure, which was 400.5 trillion won (based on the main budget) in 2017, the first year of the Moon Jae-in administration, has expanded every year and reached the 600 trillion won level for the first time this year. In just five years, the national budget has increased by 1.5 times. The annual total expenditure growth rate was also unusually high at around 8-9%.

However, this trend will be completely overhauled starting next year. The government has set the basic direction for fiscal management in next year’s budget as ‘performing the necessary fiscal role’ and ‘establishing sustainable finances.’ This contrasts with last year’s ‘active fiscal management’ approach.

Next year’s budget is expected to be based on the medium-term fiscal expenditure outlined in the ‘2021-2025 National Fiscal Management Plan’ submitted to the National Assembly in August last year. According to this plan, the fiscal expenditure growth rate for next year is set at 5%. Reflecting this, the next year’s budget is estimated to be about 638 trillion won.

Once the budget has increased, it is difficult to reduce it because mandatory expenditures account for about half. Even among discretionary expenditures, rigid costs such as personnel expenses and key investment projects are practically fixed costs. The government has set a goal to reduce discretionary spending by 10% through restructuring of underperforming executions and subsidy and grant projects.

Choi Sang-dae, Director of the Budget Office at the Ministry of Economy and Finance, said, “During the process of overcoming the COVID-19 crisis, fiscal policy played a supporting role through an expansionary main budget and seven supplementary budgets,” but added, “In that process, national debt and fiscal deficits expanded, and the fiscal capacity to respond weakened.” He continued, “The task is to expand capacity through fiscal expenditure restructuring to fully support the new government’s national agenda.”

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