South Korea Prioritizes Fiscal Discipline with Lowest Budget Increase in Twenty Years

By Jihoon Lee

SEOUL (Reuters) – South Korea’s government is set to increase its budget spending to approximately $497 billion for the year 2024. However, this proposed rise is the smallest in two decades as authorities emphasize fiscal discipline in light of declining tax revenue attributed to slower economic growth.

In its annual spending outline released on Tuesday, the finance ministry indicated that total government expenditure for 2024 will reach 656.9 trillion won, marking a 2.8% increase from 2023. This growth is lower than this year’s 5.2% increase, and it represents the smallest increase since fiscal statistics were revised in early 2005, excluding supplementary budgets.

The Yoon Suk Yeol administration, which took office in May 2022, has focused on strengthening the government’s fiscal position without excessive spending of taxpayer funds to stimulate growth, instead stressing the importance of the private sector’s role.

This decision is, in part, a response to anticipated weak tax revenue, which is estimated to decline by a record 8.3% in 2024. This expected drop will reduce total government income next year by 2.2% to 612.1 trillion won, against a backdrop of slow economic growth and ongoing discussions for further tax reductions, particularly for businesses.

The government predicts economic growth will slow to a three-year low of 1.4% this year, following expansions of 2.6% in 2022 and 4.3% in 2021, with an expectation for a 2.4% growth rate in 2024.

The fiscal deficit is projected to widen to 3.9% of GDP next year, up from an estimated 2.6% in the current year, with plans to bring the ratio back below 3% by 2025. The debt-to-GDP ratio is expected to rise to 51.0% from 50.4%.

Finance Minister Choo Kyung-ho stated, “It was a difficult decision the government made to hold onto sound financing.”

About 23 trillion won in projects judged inefficient will be eliminated or revised, with increased funding focused on social welfare, childbirth support, key industry investment, public safety, and disaster prevention.

Significant spending increases include social welfare, which will see a rise of 7.5% to 242.9 trillion won, defense spending up by 4.5% to 59.6 trillion won, and corporate support increasing by 4.9% to 27.3 trillion won.

The government plans to issue 158.8 trillion won in treasury bonds for 2024, down from the 167.8 trillion won anticipated this year. The net increase in treasury bonds is projected at 50.3 trillion won.

Additionally, it will issue up to $1.3 billion in foreign exchange stabilization bonds, compared to $2.7 billion planned for this year, and 18 trillion won in local currency bonds, marking the first issuance of this kind since 2003 to help reduce borrowing costs.

The budget proposal will be presented to the national assembly on September 1.