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Economy

Korea proposes record budget for 2022 to speed up recovery

Spending to exceed 600 trillion won mark, for the first time, raising debt to 50% of GDP

By Aug 31, 2021 (Gmt+09:00)

South Korean President Moon Jae-in is speaking at a meeting with his senior secretaries on Aug. 30.
South Korean President Moon Jae-in is speaking at a meeting with his senior secretaries on Aug. 30.

South Korea’s government proposed a record high spending for 2022 to reinforce a recovery in Asia’s fourth-largest economy despite a widening fiscal deficit.

The country plans to spend 604.4 trillion won ($521.7 billion) next year, topping the 600 trillion won mark for the first time, according to the Ministry of Economy and Finance on Aug. 31. The spending is 8.3% higher than this year’s budget excluding two supplementary budget to help households to deal with the COVID-19.

“An active fiscal role is urgently needed to complete an economic recovery and deal with changes in order of international trade,” President Moon Jae-in said at a cabinet meeting. “Active fiscal investment will speed up the economic recovery and create a virtuous cycle of increasing tax revenue.”

RECORD DEBT

The record spending is expected to raise the sovereign debt to an all-time high of 1,068.3 trillion won, ramping up the country’s debt-to-gross domestic product (GDP) ratio to 50.2%, the highest on the record. The ratio is predicted to rise further to 58.8% by 2025, according to the ministry.

The COVID-19 has been forcing the government to ramp up spending in relief packages through a series of extra budgets since last year.

In the 2022 budget, spending for job creation was set to rise 4% to 31.3 trillion won, while budget for social overhead capital (SOC) was slated to hit a record high of 27.5 trillion won.

The country is also seeking to spend 5.8 trillion won on buying more COVID-19 vaccines and boosting antivirus efforts.

The government forecast tax revenue is likely to rise 19.8% to 338.6 trillion won in 2022 as increasing vaccinations against the COVID-19 are expected to support an economic recovery, increasing corporate taxes and value-added taxes. Its total revenue including income from pension funds is predicted to be around 548.8 trillion won, falling short of the budget.

The government plans to submit the budget proposal to lawmakers on Sept. 3 with an aim to obtain approval by early December.

Write to Kyung-Mok Noh and Eu-Jin Jeong at autonomy@hankyung.com

Jongwoo Cheon edited this article.

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