Following President Lee's Repeated 'Supplementary Budget' Remarks... Hana Securities Projects 14 Trillion Won in May-June

Securities industry analysts have projected a high likelihood that a supplementary budget of approximately 14 trillion won will be drawn up in May or June, following confirmation of excess tax revenue, including corporate tax. However, they expect the economic impact of the supplementary budget to be limited to around 0.2%, and any effect on interest rates to be temporary.

Park Junwoo, a researcher at Hana Securities, stated on January 26, "Given the president's continued mention of a supplementary budget, it is highly likely that one will be drawn up again this year. The timing is expected to be in May or June." Previously, immediately after President Lee Jaemyung's comments regarding a supplementary budget became known, the Blue House clarified that there had been no review of such a plan and that the president's remarks were only general in nature. Nevertheless, President Lee has continued to mention the possibility of a supplementary budget since then.

Researcher Park explained, "The conditions specified in the National Finance Act, which was established to ensure fiscal soundness, must be met for a supplementary budget to be drawn up. This year, as the growth rate recovers to its potential level, there is likely to be debate over the appropriateness of a supplementary budget." He added, "However, if the ruling party is determined, there should be no issue in drawing up a supplementary budget based on concerns such as sluggish domestic demand and tariff risks."

The timing is expected to be May or June. While some predict a swift formulation ahead of the local elections in June, Park assessed that, unlike last year, the economic conditions are favorable and thus there is no urgency. He said, "With the current government's fiscal policy response improving the growth rate, there is little justification for a supplementary budget in the first quarter." He further noted, "The president's comment about 'having more tax revenue and an opportunity for a supplementary budget' appears to refer to the confirmation of excess tax revenue." According to Hana Securities, since 2006, there have been supplementary budgets utilizing excess tax revenue in July 2016, June 2017, July 2021, and May 2022, based on the government's submission dates.

The scale of the supplementary budget is estimated at around 14 trillion won, or 0.5% of gross domestic product (GDP). Park stated, "The 2026 supplementary budget will likely be similar to that of 2017. In 2017, the Moon Jae-in administration implemented a supplementary budget of 11.2 trillion won (about 0.5% of GDP) aimed at job creation, citing concerns over mass unemployment. The basis for the supplementary budget was concern about mass unemployment."

He added, "If, as the president stated this year, the issuance of deficit-financing bonds is minimized, the scale of funding through excess tax revenue becomes important. This year, corporate tax revenue may exceed the government’s budget estimate by 8 to 9 trillion won." Accordingly, "The final size of the supplementary budget is expected to be around 14 trillion won, or 0.5% of GDP. In addition to 8 to 9 trillion won in excess corporate tax, other sources such as excess tax revenue from non-corporate taxes, budget surpluses, and surplus funds from various government accounts are likely to be utilized."

However, Park predicted that the growth effect of the supplementary budget would be limited to around 0.1%. The impact of fiscal spending is generally greater when the economy is in a deep recession or when spending is directed toward sectors with high fiscal multipliers. Park said, "Currently, the economy is in a phase of rapid recovery, and the fiscal multiplier in the culture and arts sector is low. If fiscal resources are focused on areas such as culture and the arts, as mentioned by President Lee, the growth effect will be limited to around 0.1%." He added that this year's supplementary budget is unlikely to significantly alter existing economic and interest rate forecasts, and maintained his 'neutral' investment rating for Korean government bonds, as presented in January. He also forecasted a rate cut in the fourth quarter and a decline in interest rates within the year.

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