Tightening the Fiscal Belt Next Year... Budget Expected to Reach Around 640 Trillion Won

Ministry of Economy and Finance to Draft 2023 Budget Below 650 Trillion Won... Spending Growth Rate Expected at 5-6%
'Expansionary Fiscal Policy → Sound Fiscal Policy' Transition

[Asia Economy Sejong=Reporter Kwon Haeyoung] The Yoon Seok-yeol administration, which has shifted its policy to 'sound fiscal management,' is expected to draft the 2023 budget at around 640 trillion won, marking its first budget since taking office. This represents an increase of about 5-6% compared to this year's main budget, which is approximately 3 percentage points lower than the average annual budget growth rate of 8.7% during the five years of the Moon Jae-in administration. The Yoon government plans to tighten the fiscal belt starting next year to normalize the rapidly deteriorated national finances during the Moon administration.

According to related ministries on the 3rd, the Ministry of Economy and Finance plans to draft next year's budget below 650 trillion won, with an expected expenditure growth rate in the range of 5-6%.

If the expenditure growth rate next year is in the 5% range, the budget will be in the high 630 trillion to low 640 trillion won range; if in the 6% range, it will be in the mid to high 640 trillion won range. An increase in government spending of 5-6% next year would be about 3 percentage points lower than the Moon administration's average annual expenditure growth rate of 8.7%. It is also lower than the 7.1% increase in the 2018 main budget, the first budget drafted under the Moon administration. Accordingly, the government's fiscal management policy, which had been aggressively expanded due to COVID-19 and welfare policies, is expected to gradually normalize. Previously, the average annual expenditure growth rates under the Lee Myung-bak and Park Geun-hye administrations were 5.9% and 4.0%, respectively.

The government has announced plans for the highest level of expenditure restructuring in history. Among previous administration projects, the 'digital' sector, one of the two pillars of the Korean New Deal, and the regional currency project budget are reportedly under review. Discretionary spending, as well as mandatory and rigid expenditures set by law that the government cannot freely reduce, will also be included in the expenditure restructuring targets.

If next year's budget is drafted in the 640 trillion won range, it will represent a frugal national finance operation that exceeds the new fiscal rules announced by the government last month (which limit the management fiscal deficit to within 3.0% of GDP). Based on the new government's economic policy direction data, assuming next year's nominal GDP is 2,277.4565 trillion won and fund balances remain at about 40 trillion won similar to this year, the fiscal rules can be maintained if total government expenditures do not exceed total revenues by more than about 30 trillion won. Since national tax revenues next year are expected to increase compared to this year (396.6 trillion won), and total revenues (including the second supplementary budget) are expected to rise to 609.1 trillion won, it is calculated that fiscal rule compliance is possible even if government spending exceeds 650 trillion won.

The government plans to limit the rapid increase in national debt caused by excessive spending over the past five years through fiscal normalization. As of the end of May, national debt stood at 1,018.8 trillion won, a 54.3% surge compared to 660.2 trillion won in 2017, the first year of the Moon administration.

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