Seoul government requests 4.6% increase in 2014 budget

The government wants to increase its spending next year by 4.6 percent from this year's budget in order to lend more support to stimulate the prolonged sluggish economic recovery, the finance ministry said Thursday. According to the ministry, the government will request the National Assembly to approve its 357.7 trillion won (US$332.2 billion) budget proposal for 2014, which is larger than the 342 trillion won budget set aside for this year. The proposal, which was endorsed by a Cabinet meeting on Thursday, will be submitted to the National Assembly by Oct. 2. The requested budget increase is lower than the 5.1 percent rise in the 2013 budget. The smaller growth in spending comes in the face of toughened conditions that make it difficult for the government to secure sufficient funds from taxes. The ministry said that it has tried hard to strike a balance in crafting the budget plan between strengthening the economic growth momentum and making sure the government's fiscal status stays in good shape. But the focus is slightly tilted toward boosting the overall economy. "We have tried to find a compromise point in the face of three things -- the economic conditions, which haven't fully recovered; the need to push for the government's major policy agenda; and also the need to make sure the fiscal health stays in good shape," Finance Minister Hyun Oh-seok told reporters during a briefing on the budget proposal. "In drawing up the budget proposal, we focused more on the first thing."    "What we need to focus right now on is to resolve welfare issues by stimulating the economy and in this regard, our budget proposal is focused on boosting the economy," said Hyun, who concurrently serves as deputy prime minster. The ministry requested its spending on national defense and education to increase by 4.2 percent and 2.1 percent for next year to 35.8 trillion won and 50.8 trillion won, respectively. Spending on agriculture, fisheries and food-related polices was also asked to be increased 1.1 percent to 18.6 trillion won, while that on foreign relations and unification was requested to be increased 2.1 percent to 4.2 trillion won. The ministry cut its spending on social overhead capital (SOC) by 4.3 percent to 23.3 trillion won in an apparent bid to better manage its tight budget for next year. The reduction in the budget proposal still seems to be less than predicted given that the government has pushed to significantly scale down its SOC spending. Drawing attention, among other things, is how much the ministry will ask for its spending on welfare given that the government is pushing to expand social welfare benefits for a broader group of populations as promised by President Park Geun-hye during her presidential campaign. The ministry asked its spending on the welfare sector that also includes health and employment to increase 8.7 percent to 105.9 trillion won. This marked the first time that the budget for welfare exceeded the 100 trillion won mark. At issue is the budget for the "basic pension fund" designed to provide help for senior citizens, a program that President Park has promised to launch for the older population struggling to make ends meet. Under the program, the government plans to provide 100,000-200,000 won every month for senior citizens aged 65 or older, and whose income is in the lowest 70 percent of their age group. The aount will be determined in accordance with how long an individual has subscribed to the already existing national pension program. A longer subscription means less support since he or she is regarded as having a better social safety net than others. The program, however, is expected to spark criticism that the government does not make good on its promised welfare for senior citizens as it excludes the relatively wealthy senior citizens from receiving the benefits. President Park Geun-hye has promised to provide 200,000 won for all people aged 65 and older under the pension program. The scaled-back support for senior citizens comes as the government is struggling to secure a sufficient amount of budget to finance the program in the face of the slow economic recovery and the resulting shortages of tax revenue. The ministry predicted that the government's gross revenue will amount to 370.7 trillion won next year, including 218.5 trillion won in national tax. The projected revenue is down 0.5 percent from the 2013 figure, which is the first decline in the government's income in four years. The projected revenue is down 0.5 percent from the 2013 figure, which is the first decline in the government's income in four years. The projected revenue is based on the premise that the economy will grow 3.9 percent next year following a 2.7 percent rise this year. Under the budget plan, the national debt will also likely grow to 515.2 trillion next year, up from 480.3 trillion won projected for this year, raising concerns over the government's deteriorating fiscal status. The debt represents 36.5 percent of the country's gross domestic product. "Of course, it is important to fulfill campaign pledges, but we decided to adjust some of the welfare benefits, thinking that raising money by stimulating the economy must be a priority," Finance Minister Hyun said. "We will push to create a virtuous cycle in which an economic recovery and strengthened growth momentum lead to bringing in more tax revenue, which is needed for us to carry out our policy agenda and improve the overall fiscal soundness," he added. The ministry, meanwhile, unveiled its mid-term fiscal management plan that outlines the recommended overall direction for spending and expenditures from 2013-2017. Under the plan, the ministry said that it aims to limit the government's fiscal spending and revenue growth to an annual average of 3.5 percent and 5 percent, respectively, in a move intended to balance its fiscal account. The ministry seeks to reduce its fiscal deficit from 1.8 percent of the gross domestic product next year to 0.4 percent by the end of 2017, which it regards as an "almost balanced level."