2023 budget plan calls for belt-tightening
The Yoon Suk-yeol administration's 2023 budget plan marks a shift to fiscal austerity from the previous government's fiscal expansion. The shift is a step in the right direction as the country has shifted to a belt-tightening mode to cope with runaway inflation, the weakening local currency against the U.S. dollar, and higher interest rates.
On Tuesday, the Yoon government approved a 639 trillion won ($473.5 billion) budget for next year. The proposed amount is up 5.2 percent from this year's budget of 607.7 trillion won, the lowest growth rate since the annual outlays rose by 3.7 percent in 2017. However, the sum represents a 6 percent fall from this year's total expenditures of 679.5 trillion won that included two rounds of extra budgets.
It is the first time since 2010 that the government has decided to cut down on the total expenditures. Under the new budget bill, the Yoon administration plans to cut non-core expenditures by a record 24 trillion won in 2023. This reduction is aimed at regaining fiscal soundness. The government is seeking to curtail the fiscal deficit to 58.2 trillion won next year from this year's estimated sum of 110.8 trillion won.
If the cut is made as planned, the fiscal deficit-to-GDP ratio will drop to 2.6 percent in 2023 from the 5.1 percent estimated for this year. The government is also trying to check the growth of the national debt which is forecast to reach 1,134.8 trillion won next year from this year's projected sum of 1,068 trillion won. The debt-to-GDP ratio is expected to edge up to 49.8 percent from 49.7 percent, marking the lowest growth in four years.
As Finance Minister Choo Kyung-ho said, now is the time for fiscal austerity. The previous Moon administration had pushed for aggressive fiscal expansion to cushion the economic shock of the COVID-19 pandemic. The Bank of Korea (BOK) also cut its key interest rate to a record low of 0.5 percent at the height of the unprecedented public health crisis.
But now, things have changed greatly with the U.S. Federal Reserve leading monetary tightening to tame inflation. The BOK has continued to raise its key rate since August 2021 to fight soaring inflation and boost the value of the won against the greenback. The Yoon government's fiscal tightening is in line with the central bank's monetary tightening. There is no doubt that a tight budget is required to regain fiscal and monetary stability.
The government plans to present its 2023 budget bill to the National Assembly soon. Both lawmakers of the ruling and opposition parties should deliberate on the bill closely and approve it by the legally-binding deadline. Opposition parties should not try to increase the budget to include some pork-barrel projects.
The Yoon administration should be careful not to draw up extra budgets in a bid to stimulate the economy or spend more on populist projects. However, it is necessary to strengthen the social safety net to support those most vulnerable to fiscal austerity and monetary tightening. It is equally important to assure that fiscal austerity should not lead to a recession or stagflation. Policymakers need to take a flexible attitude to avoid potential economic and financial woes. They also must set elaborate policies to overcome the country's structural economic weakness and maintain growth momentum.
The Yoon Suk-yeol administration's 2023 budget plan marks a shift to fiscal austerity from the previous government's fiscal expansion. The shift is a step in the right direction as the country has shifted to a belt-tightening mode to cope with runaway inflation, the weakening local currency against the U.S. dollar, and higher interest rates.
On Tuesday, the Yoon government approved a 639 trillion won ($473.5 billion) budget for next year. The proposed amount is up 5.2 percent from this year's budget of 607.7 trillion won, the lowest growth rate since the annual outlays rose by 3.7 percent in 2017. However, the sum represents a 6 percent fall from this year's total expenditures of 679.5 trillion won that included two rounds of extra budgets.
It is the first time since 2010 that the government has decided to cut down on the total expenditures. Under the new budget bill, the Yoon administration plans to cut non-core expenditures by a record 24 trillion won in 2023. This reduction is aimed at regaining fiscal soundness. The government is seeking to curtail the fiscal deficit to 58.2 trillion won next year from this year's estimated sum of 110.8 trillion won.
If the cut is made as planned, the fiscal deficit-to-GDP ratio will drop to 2.6 percent in 2023 from the 5.1 percent estimated for this year. The government is also trying to check the growth of the national debt which is forecast to reach 1,134.8 trillion won next year from this year's projected sum of 1,068 trillion won. The debt-to-GDP ratio is expected to edge up to 49.8 percent from 49.7 percent, marking the lowest growth in four years.
As Finance Minister Choo Kyung-ho said, now is the time for fiscal austerity. The previous Moon administration had pushed for aggressive fiscal expansion to cushion the economic shock of the COVID-19 pandemic. The Bank of Korea (BOK) also cut its key interest rate to a record low of 0.5 percent at the height of the unprecedented public health crisis.
But now, things have changed greatly with the U.S. Federal Reserve leading monetary tightening to tame inflation. The BOK has continued to raise its key rate since August 2021 to fight soaring inflation and boost the value of the won against the greenback. The Yoon government's fiscal tightening is in line with the central bank's monetary tightening. There is no doubt that a tight budget is required to regain fiscal and monetary stability.
The government plans to present its 2023 budget bill to the National Assembly soon. Both lawmakers of the ruling and opposition parties should deliberate on the bill closely and approve it by the legally-binding deadline. Opposition parties should not try to increase the budget to include some pork-barrel projects.
The Yoon administration should be careful not to draw up extra budgets in a bid to stimulate the economy or spend more on populist projects. However, it is necessary to strengthen the social safety net to support those most vulnerable to fiscal austerity and monetary tightening. It is equally important to assure that fiscal austerity should not lead to a recession or stagflation. Policymakers need to take a flexible attitude to avoid potential economic and financial woes. They also must set elaborate policies to overcome the country's structural economic weakness and maintain growth momentum.
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