Stopping the 'Super Expansionary Fiscal Policy' Framework... Government Spending Enters Speed Control

Criticism of Worsening Fiscal Soundness Reflects Yoon's Intentions
Reduction in COVID-19 Response Spending, 10% Cut Target for Discretionary Spending... Moon's Korean New Deal Also Disappears
Guideline Changes Expected After New Government Inauguration

[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 that government spending under the next Yoon Seok-yeol administration may enter a 'speed adjustment' phase. Analysts believe that this reflects the intentions of President-elect Yoon’s camp, which has maintained a critical stance on the deterioration of fiscal soundness.

The Ministry of Economy and Finance identified four major investment priorities in next year’s budget draft guidelines: ▲firm economic leap ▲strengthening the foundation for livelihood stability ▲expanding future investments ▲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.

A notable point is the reduction of expenditures related to COVID-19 response. The government plans to revert temporary expenditures that surged due to COVID-19, such as emergency financial support for small business owners, employment retention subsidies, and quarantine support projects, back to pre-crisis levels of 2019. The goal of reducing discretionary spending by 10% was also set, with the expected scale of expenditure cuts estimated at around 10 trillion won. Additionally, fiscal innovation measures include improving government resource efficiency through consolidation of similar funds and institutionalizing fiscal rules for medium-term fiscal management.

It is also noteworthy that the 'Korean New Deal' 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."

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' suggests that the new administration’s fiscal policy will focus on 'expenditure restructuring.' President-elect Yoon Seok-yeol has also criticized the expansionary fiscal policy sustained throughout the current administration and advocated for strengthening fiscal soundness.

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 planned to increase by 5.0%. This would result in the 2023 main budget size being approximately 638 trillion won.

The increase in national debt is also steep. National debt rose from 660.2 trillion won in 2017 to 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, reaching 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 deficits and national debt increases will not significantly slow down even after the new administration takes office. Although President-elect Yoon has emphasized expenditure restructuring, if a second supplementary budget is implemented after inauguration and pre-election pledges involving cash support are not selectively adjusted, the budget size for this year could expand to around 650 trillion won.

Meanwhile, despite the government’s confirmation of the budget draft guidelines on this day, it is expected that the guidelines will undergo considerable changes as new key tasks are reflected following the launch of the Yoon Seok-yeol administration.

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