"Only Ten Days Left This Year..."...The Worst Delayed Budget

Unprecedented Crisis in Preliminary Budget Formulation
Concerns Over Welfare Project Disruptions for Vulnerable Groups

[Image source=Yonhap News]

[Asia Economy reporters Naju-seok, Oh Ju-yeon, Sejong=Lee Jun-hyung] The year 2022 will be recorded as the worst year in which the National Assembly of the Republic of Korea delayed the approval of the next year's budget the most. As of the 21st, the 115th day since the National Assembly began reviewing the government's new year budget proposal, the ruling and opposition parties have failed to find a compromise and remain at an impasse. If the new year budget is not approved by the National Assembly by the end of the year, which is just ten days away, the government will face an unprecedented situation of preparing a provisional budget. If a provisional budget is prepared, discretionary spending, which accounts for about half of the budget, will inevitably be suspended, causing disruptions to welfare projects for vulnerable groups and potentially having a negative impact on the already deteriorating Korean economy.

According to the National Assembly on the 21st, it remains uncertain whether the People Power Party and the Democratic Party of Korea will hold a meeting for budget negotiations on that day. Joo Ho-young, floor leader of the People Power Party, after attending the party's pro-Yoon Seok-yeol study group called "People's Sympathy" in the morning, told reporters, "Currently, there are no plans for budget negotiations with the opposition." Park Hong-geun, floor leader of the Democratic Party, pressured, saying, "The Democratic Party has repeatedly made magnanimous concessions for the livelihood economy. Now, the ruling party, the People Power Party, must make a decision."

The floor leaders of both parties met the previous afternoon to coordinate on contentious budget issues but parted ways without narrowing their differences. Currently, the ruling and opposition parties are engaged in a tug-of-war over issues such as the National Assembly Speaker's mediation on lowering the corporate tax top rate by 1 percentage point, budget cuts for the Ministry of the Interior and Safety's Police Bureau and the Ministry of Justice's personnel affairs, and increases in regional love gift certificates (local currency).

Both parties are aiming for a comprehensive settlement through a floor leader negotiation. The idea is that once a broad agreement is reached, detailed give-and-take is possible. However, since the legal deadline for budget approval passed on the 2nd and the National Assembly Speaker's target deadlines have repeatedly been missed, there are concerns that the situation could escalate to a provisional budget crisis. If a provisional budget is prepared, only mandatory expenditures and civil servant salaries?the minimum costs?can be executed, making it impossible to carry out discretionary spending, which accounts for about half of the budget. There are also concerns that vulnerable groups such as low-income families, the elderly, and the disabled will be the first to suffer due to the potential suspension of welfare projects. A government official explained, "Welfare projects are usually planned with local government funds in December, then go through local councils to secure matching funds before implementation. However, due to the delay in budget approval, securing local funds is inevitably postponed sequentially."

The problem extends beyond budget execution to the overall economy, which is on a worsening path. Next year's global economic recession forecasts a bleak outlook for Korea's economy, and if the political sector's failure to agree on the budget becomes known domestically and internationally, political instability will inevitably have a negative impact on the entire economy.

Since the automatic submission system for the new year budget was introduced in 2014, the National Assembly has missed the deadline several times, but this is the first time it has extended beyond the regular session. Political disputes over the budget have repeated annually, but the deadlock between the ruling and opposition parties without any concessions, as seen this time, is unprecedented. Both parties are focused solely on consolidating their support bases rather than considering the economic burden or worsening public opinion caused by the budget delay.

For example, recently, the People Power Party moved to amend its party rules to elect new leadership through 100% party member voting. This removes the 30% public opinion poll role introduced by the party's predecessor, the Grand National Party, in 2004, after 18 years, choosing leaders solely based on party members' votes. Lee Jae-myung, who is criticized for "using the budget to shield judicial risks," posted on his SNS, "A long and deep winter is coming. The colder it gets, the more we must lean on each other. Comrades, let's unite and overcome this together," urging his supporters to rally. This is read as politics satisfying only the support base, not the majority of the people.

[Image source=Yonhap News]

In political circles, there is an analysis that the combination of a minority ruling party and opposition majority, along with regime change, has caused a vicious cycle that is hampering this year's budget negotiations. This year is the first budget review after the regime change between the ruling and opposition parties. It is a political consensus that budget review is generally difficult after a regime change. Additionally, the conflict of authority between the government and the legislature regarding the budget in a minority ruling party National Assembly has made budget approval more difficult. Our Constitution and National Assembly Act provide a structure more favorable to the government and ruling party for stable budget approval. They set legal deadlines for the budget and include automatic submission clauses for budget-related bills to prevent obstruction by the opposition. Moreover, increasing the budget or creating new budget items requires government consent. However, in a minority ruling party situation where the Democratic Party holds a majority of seats, it has the power to decide the fate of the budget approval. While it cannot increase the government budget, it can reduce it. It has the power and authority to process amendments that cut parts of the government's original budget proposal. This creates a conflict between the legislative power and budget review authority of the National Assembly, especially the opposition, and the government's (plus ruling party's) authority over budget approval and formulation.

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