[Budget Q&A] Choo Kyung-ho "Considering 0% Budget Growth Rate... Concluded 2.8% After Deliberation"

Q&A with Deputy Prime Minister for Economy Choo Kyung-ho on the Budget Proposal

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is speaking at the ruling party-government meeting on the 2024 budget held at the National Assembly on the 23rd. Photo by Hyunmin Kim kimhyun81@

Q. Won't the 2023 fiscal management balance ratio worsen?

This year's budget growth rate is 2.8%. It is a very tight spending scale. Because the economic situation is not good, some argue that the increase should be between 5% and 6%. The expenditure growth rate is a very low figure. We tightened our belts.

National fiscal soundness is a value that must not be shaken even for a moment. When both household and government debts increase and concerns about soundness arise, doubts about national credibility grow. If trust in bonds and credit ratings declines, the country faces fundamental difficulties such as having to raise funds at high costs.

However, it was difficult to draft the budget solely with sound fiscal management in mind. If we prioritized only fiscal soundness, the fiscal expenditure growth rate would have to be frozen or negative. We even considered freezing the budget growth rate at 0%, but such a choice was difficult. Because we would not be able to spend on securing public safety, disaster preparedness, and livelihood issues.

The conclusion to harmonize these two values was "substantial and frugal." On the foundation of sound fiscal management, we decided to properly spend money on the essential parts of the nation. We aimed to properly spend where money must be spent, such as livelihood support, economic vitality, future preparedness, national essence, safety, and defense. After much deliberation, we set the growth rate at 2.8%, the lowest ever.

Q. Last year, the SOC budget decreased, but this year it increased by 4.6%. Was this budget allocation for election purposes?

Interpreting it in connection with the general election is excessive. It should be understood that the necessary demand was sufficiently reflected. The aggregated figure should be seen as an increase of about 4-5%. Specifically, some parts of the SOC budget have designs planned, and some are in the planning stage. The demand reflected is based on the progress of subsequent stages.

Q. The senior job project has greatly increased, but the previous government was also criticized for a "handout budget." What is different from the previous administration?

Recently, aging is progressing rapidly. The population aged 65 and over increases by 500,000 every year. Many elderly people want to continue social activities healthily. We focused on the increasing population and demand for senior jobs. The difference from the past is that instead of focusing on public jobs directly funded by the government, we emphasized expanding jobs in the market type and social service type sectors in cooperation with the private sector.

Q. The public housing project budget slightly increased this year. The government seems to need to secure the budget stably. How much has been secured?

Last year, there was a shift from mostly rental housing to sales. The government is financially supporting the promised annual supply of 500,000 housing units without disruption.

Q. Is there a separately allocated budget related to contaminated water discharge?

The budget related to contaminated water discharge has been expanded, and the budget to strengthen the distribution monitoring system to reassure the public has been increased. The budget for fishermen who may face business difficulties due to reduced seafood consumption has also been expanded. Budgets supporting discount events and promotions have been increased.

However, the budget was allocated to respond to the situation. It is still uncertain what form the project will take. If necessary demand arises, we will respond this year as well by mobilizing contingency funds. When the situation occurs, we will respond with available resources to reassure the public accordingly.

Q. Next year's tax revenue is estimated to be lower than two years ago. The growth rate was not predicted to be lower than next year. What is the reason?

We forecast next year's tax revenue based on the current situation, but this year's tax revenue is not good. Currently, there is a tax revenue reduction of about 40 trillion won. It seems this will increase over time. Based on this situation and the available data, the tax revenue forecast assumes a significant decrease next year. Therefore, the fiscal situation will not be easy next year either.

Q. The fiscal rule proposes to cap the management fiscal balance deficit at 3%, but next year's deficit is 3.9%. It looks like the rule will be broken from next year while promoting it. Will the fiscal rule continue to be pursued?

The legislation of the fiscal rule will be continuously pursued. We are persuading and explaining to the National Assembly.

Also, if you look closely at the rule, it states that if the economic situation is difficult, the standard can be exceeded but must return to 3% within five years. The 3% is not an absolute baseline that must be strictly maintained. It is an important benchmark, but maintaining it would mean a total expenditure growth rate of -14% (calculated).

As mentioned earlier, the government also considered a 0% total expenditure growth rate. To prioritize fiscal stability alone, next year's total expenditure growth rate would have to be negative. The budget would have to be drastically reduced. In that case, demands such as livelihood and public safety could not be considered at all. Therefore, after much deliberation, the government decided on a budget increase of about 2.8%.

Q. Please present the major projects among those whose expenditures were restructured. The biggest issue in this year's budget formulation is "cuts."

It is difficult to provide a list. It is not a great secret. More than 10,000 projects were adjusted. They were re-examined from the ground up. Some projects were completely cut, while others were reinforced or newly established. Cuts were made mainly on projects judged to be insufficient based on fiscal performance evaluation. The adjusted parts among more than 10,000 projects amounted to about 23 trillion won.

The largest part was a massive overhaul of subsidies. About 4 trillion won of subsidies were reorganized. Also, in the national R&D sector, we focused on parts where budgets had been distributed in a piecemeal manner. We approached it with a completely different framework from the past budget allocation method. We focused on intensive investment in areas that can produce proper project outcomes and create technological gaps. Therefore, 7 trillion won was cut from existing R&D projects, of which 3 trillion won was reinvested in other projects. About 4 trillion won was reduced in total.

Even if the National Assembly requests detailed disclosure of the cut projects from the Ministry of Economy and Finance, we must maintain the same stance. If we give specific examples related to subsidies, some projects may become targets and cause misunderstandings.

Q. Was there a significant budget cut in the Saemangeum SOC part?

We did not specifically treat the Saemangeum project budget. Major Saemangeum projects proceed according to plans like other projects. However, the budget is allocated according to the construction progress rate. If the project had not started at all, we would discuss whether to proceed under the current situation, but we did not stop ongoing construction or budget allocation.

Q. What was the biggest concern in budget formulation?

It was the fiscal situation. We had to start from here. There was concern about what stance to take considering the national debt and tax revenue shortage situation comprehensively. If we obsessed only with balanced budgets, the expenditure growth rate would be negative, so it was not an easy option for policymakers who must make decisions based on reality. Because we had a commitment to sound fiscal management, re-examining the budget from zero base was not easy. It was difficult for ministries to focus on eliminating wasteful or net-increasing factors in the budget. As the President emphasized, while maintaining sound fiscal management, we focused on spending where necessary and strengthening fiscal input for vulnerable groups.

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