November 21, 2024

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A 2025 spending budget of 677.4 trillion won ($509.2 billion) is shown on a board during the Finance Ministry's press briefing at the Sejong government complex last week. (Yonhap)

The Ministry of Economy and Finance has proposed a 677.4 trillion won ($509.2 billion) budget for next year, focusing on fiscal consolidation while bolstering public welfare and investing in strategic emerging industries.

The budget, proposed by the finance ministry and endorsed by the Cabinet on Tuesday, represents a 3.2 percent hike from this year, reflecting the government's commitment to spending control and improved fiscal health.

"Once known for its strong fiscal soundness, Korea now faces significant risks, with national debt surpassing 1,000 trillion won and the burden on future generations increasing substantially," Finance Minister Choi Sang-mok stated at a recent press briefing.

Choi's remarks come amid a constant surge in national debt, projected to reach a record 1,277 trillion won, or 48.3 percent of gross domestic product, next year. The debt is anticipated to keep rising, potentially exceeding 1,512 trillion won by 2028, with its ratio to gross domestic product surpassing 50 percent.

The modest increase in next year's budget reflects President Yoon Suk Yeol's ongoing belt-tightening, contrasting with the previous administration's expansionary policies. This year's budget saw a 2.8 percent increase, the smallest since 2005.

Lower-than-expected tax revenue also contributed to expenditure control. Korea has faced revenue shortfalls for two consecutive years, with national tax revenue expected to fall over 10 trillion won short of targets this year, primarily due to declining corporate tax revenues.

State revenue is expected to rise by 39.6 trillion won to 651.8 trillion won, with tax revenue increasing by 4.1 percent to 382.4 trillion won.

Under the austerity policy, the fiscal balance is projected to show a 77.7 trillion won deficit in 2025, an improvement of 13.9 trillion won from 2024, and a 0.7 percent on-year fall in deficit-to-GDP ratio to 2.9 percent. The government aims to pull this down to 2.4 percent by 2028.

Despite overall spending reductions, Korea plans to enhance public welfare and focus on structural reforms crucial for future growth.

The government will increase the standard median income for welfare programs by 6.42 percent and raise the basic living allowance by an average of 8.3 percent annually, marking the largest increase ever.

To boost economic vitality, the government will significantly increase investment in research and development, up 3.2 trillion won from this year to 29.7 trillion won in 2025, focusing on the "three key future game-changers" — AI, biotechnology, and quantum technologies.

To support new export sectors, the government will also create targeted funds worth 100 billion won for nuclear power growth and 40 billion won for defense exports while facilitating direct venture capital investment by foreigners in Korea’s content industry.

The government also pledged to overhaul financial support systems to address low birth rates, focusing on work-family balance, child-rearing, and housing, including extending spousal parental leave and increasing parental leave benefits.

Additionally, the government will support the successful launch of the 2025 Gyeongju Asia-Pacific Economic Cooperation Summit and expand official development assistance to key regions such as Africa and Central Asia.

The final budget for next year will be submitted to the National Assembly early next month.

By Choi Ji-won (jwc@heraldcorp.com)