2010 Budget to Focus on Welfare, Economic Recovery

Deputy Minister YOO says some 60 percent of the budget to be front-loaded in the first half

The government plans to prioritize stabilizing the livelihoods of citizens while speeding up the envisaged economic recovery through the efficient expenditure of the budget for 2010.
The Ministry of Strategy and Finance (MOSF) is also poised to focus on offering 577,000 jobs this year as part of its efforts to lay the groundwork for economic revitalization. The ministry is also committed to pushing ahead with ‘The Hope Work Project’ and the Four-River Restoration Plan.
Following are excerpts from an interview with YOO SungKull, the Deputy Minister for Budget at the MOSF, on the details of the budget plan for 2010.
Q: What are the size and special points of the 2010 budget plan?
A: The total expenditure of 2010 budget stands at 292.8 trillion won, an increase of 2.9 percent from 2009. The total revenue will amount to 290.8 trillion won, down from last year’s 291.0 trillion won. This indicates the government’s intention to press ahead with expansionary fiscal policy stance to stimulate the national economy. We plan to issue government bonds worth 29.3 trillion won to make up for the budget deficit of the general account, so the portion of national debt to GDP will be 36.1 percent.
With the gradual economic rebound and the deteriorating fiscal soundness, we plan to scale down our expansionary stance to a certain extent. This year, the consolidated fiscal balance will be reduced down to -0.2% from -2.1% last year. Excluding social security funds (e.g. National Pension Fund), the consolidated fiscal balance will be reduced down to -2.7% from last year’s -5.0%.
Our budget expenditure this year will primarily focus on stabilizing the livelihoods of our citizens, and revitalizing the national economy. To this end, the welfare budget has been expanded to a record high level and budget support for Green Growth and Research & Development sectors have also been largely increased.
Q: The National Assembly passed the 2010 Budget Bill on Dec. 31. Has there been any problem with execution? Do you plan an early budget execution this year as well?
A: The government is having an early execution of budget in order to solidify the trend of the economic recovery and preemptively manage possible economic uncertainties. Of the 271.2 trillion won of budget earmarked for major operating expenditures of the general account, special account, funds, and public institutions, 60.1 percent (163 trillion won), will be spent during the first half of the year. This figure excludes the government’s payroll costs and personnel expenses.
We do expect difficulties with budget execution this year since there has been a two-week delay, compared to last year, in the National Assembly’s passing of the budget bill. However, the government will minimize the possible fallouts from the delayed budget passage by expediting the investment activities of the State-Owned Enterprises, which are irrelevant to the budget passage, and setting off as early as possible with rollover projects as well as the continued investments in SOC (Social Overhead Capital).
Q: The welfare budget, with the goal of stabilizing the livelihoods of citizens, will reach a record-high level this year and the government has introduced a new sort of welfare program. What are the details?
A: The motto of our policy stance is “a warm society for the working class, growth of the middle class.” Under this motto, we have set aside 81.2 trillion won to promote the welfare of the people. This means a growth of 8.9 percent in the area of welfare, more than triple the increase rate of the total budget, which stands at 2.9 percent. The portion of welfare out of total expenditure has increased from 26.2 percent in 2009 to 27.7 percent in 2010. With a sharp increase in the welfare budget, we have introduced new programs designed to stabilize the livelihoods of our citizens. We plan to provide the lower-income group with savings assistance so that they can accumulate 10 million won of seed money to achieve financial viability within three years. This amounts to 24.9 billion won. Some 330,000 severely handicapped people will also get a monthly pension of between 90,000 won and 150,000 won, which comes down to a total of 147.4 billion won. The plan will be carried out from July when the related bill now pending at the National Assembly is passed.
A new program will also be introduced in childcare nationwide. Some 50,000 children from households with more than two children may receive free childcare services (15.6 billion won), while 18,000 new dual-income households will also be able to receive 9.6 billion won worth of government support. Some 3,000 childcare facilities will be granted 10 million won each for remodeling to encourage the parents to entrust their children to them, while 14,000 single-mother household heads under the age of 24 will get 12.1 billion won worth of support in terms of schooling vouchers and medical treatment. A total of 56,000 facilities for senior citizens across the nation will each receive 300,000 won per year for fuel cost aid, while 67,000 elderly people with Alzheimer’s disease will receive monthly medical support of 30,000 won each.
Q: How is the government dealing with unemployment in terms of budget allocation?
A: The government seeks to create 577,000 jobs this year as opposed to 404,000 in 2009 main budget. Job creation will focus on providing jobs for those who are most vulnerable to unemployment, such as the lower-income group, the youth population and senior citizens. We will also try to increase jobs in social welfare services.
In the wake of the global financial crisis, most of the temporary projects reflected in the supplementary budget for 2009 have been terminated, but we plan to push ahead with ‘The Hope Work Project’ to help stabilize the livelihood of the lower-income group and to relieve the unemployment shock from the project terminations. To do this, we plan to modify the related regulations to limit the beneficiaries of ‘The Hope Work Project’ to those who have lost their jobs or had their businesses shut down due to the economic recession.
In addition to job creation through fiscal support, we plan to press for various projects designed to ease regulations on the private sector, advance the service industry, and promote new growth engines so that the private sector may actively create new jobs.
Q: Would you please explain the Four-River Restoration Plan, which has been a controversial issue at the National Assembly?
A: Despite conflicts over the plan and the budget cuts in the National Assembly’s review process, the reduction would not undermine the smooth facilitation of the project. So we will continue the project as planned by reducing the operational expenses.
The Four-River Restoration Plan is a multi-purpose project pursuing securing water resources, preventing flood, improving water quality, restoring ecological systems, and creating complexes with cultural space for the local residents. A total of 16 weirs will be built to increase the volume of available water by 1.3 billion cubic meters alongside new dams and improved reservoirs.
We will also strive to remarkably enhance water quality by expanding water treatment facilities while creating new leisure space along the rivers, which will contribute to regional development. Ministry of Land, Transport and Maritime Affairs, the Ministry of Food, Agriculture, Forestry and Fisheries, and the Ministry of Environment will join hands with local governments to comprehensively monitor the progress of the project. Toward that end, we will install web cameras at the construction sites to detect problems while monitoring the progress. We are going to crunch our construction efforts before the rainy season so we will have more than 60% of the core construction phase, such as weir building, completed by the end of this year.
Q: The importance of R&D cannot be overemphasized for the expansion of the growth potential. What is the ministry’s plan toward that end?
A: We plan to spend more money in the areas of R&D, which the private sector tends to avoid due to the high risk factor, such as fundamental research on developing original technologies, new growth engines and green growth industry. Such investment in the R&D sector aims to strategically invest in areas that feed off of one other in a virtuous circle of the R&D cycle, in which the development of original technologies leads to commercializing new technologies, which in turn leads to increased private investment, which in turn leads to enhancing Korea’s overall industrial competitiveness and new job openings. Our objective is to see this virtuous circle expand and reproduce itself.
In 2010, the focus of our R&D investment is expanding Korea’s R&D foundation and largely increasing investment in original technologies for the future growth engine and early commercialization of the new technologies. We are also investing in individual research projects on fundamental research in order to enhance research capacity of the individuals. As such, our strategic investment in the R&D sector will strengthen the virtuous circle of Korea’s R&D cycle.
The government has been pressing for a plan to increase the R&D investment by 1.5 times that of 2008 by the year 2012. For the year 2010, the government has earmarked 13.7 trillion won for R&D, an increase of 11.0 percent from a year earlier. Of the total R&D budget, those belonging to the Ministry of Education, Science and Technology and the Ministry of Knowledge Economy account for the majority portion with 4.4 trillion won each, followed by those of the Defense Acquisition Program Administration (DAPA), the Ministry of Land, Transport and Maritime Affairs, and the Ministry of Health and Welfare and Family Affairs. In the meantime, the percentage of fundamental research out of the total R&D investment is estimated to be approximately 31.3% as of 2010, and we plan to increase this number to 35% by 2012.
Hand in hand with the increased R&D budget, we are going to improve the efficiency of R&D budget as well. In order to encourage and support a long-term commitment to research, we are going to increase our support for the compensation of the research workers involved in government-commissioned research projects through improved application of the PBS (Project-Based System).
As we have merged 14 R&D management institutions into 4 institutions in 2009 to better serve the research needs of each ministry, this year we are going to continue to restructure and improve our policies on research expenses to enhance the efficiency of R&D and its projects. We are also looking to merge similar or overlapping R&D projects across the ministries and increase the utilization of the costly research equipments through measures such as shared use policy.
Q: Korea’s contribution to the international community is expected to increase sharply with its admission into the Development Assistance Committee (DAC) of the OECD. Can you give us some specifics on this issue?
A: The Republic of Korea has been playing its role as the 24th member of the DAC of the OECD from Jan. 1 this year. Korea has been attracting global attention as the only nation that has ever emerged from being a recipient nation to a donor nation. In this respect, we plan to continue to increase our ODA (Official Development Assistance) volume to 1.338 trillion won in 2010, equivalent to 0.13 percent of the GNI, from 1.094 trillion won in 2009. The portion will increase to 0.15 percent in 2012.
In the meantime, Korea has also been actively engaging in various activities for international organizations such as the United Nations and the Peace Keeping Operation (PKO) as a part of our efforts to play a role that matches our heightened status in the international community. The nation’s allotment for international organizations rose four times over the past 10 years. In 2010, the ministry earmarked 341.7 billion won of the budget to that end, up 36.5 percent from a year ago.
In addition, as Korea is set to host the G-20 Summit in November this year, we will actively pursue a “Global Korea” through proactive contributions to the international community.
Q: Will you tell us about the national debt projections?
A: In 2010, the national debt will likely reach 407.2 trillion won, equivalent to 36.1 percent of the GDP. This indicates an increase of 41 trillion won from 2009’s debt of 366.0 trillion won (35.6 percent of GDP).
But the recent rise in debt was inevitable in the process of counteracting the global financial crisis of an unprecedented scale. However, this is neither a structural nor permanent phenomenon but an extraordinary one, which is not only affecting Korea, but many nations around the world as well.
According to the IMF (November 2009) the national debt of the United States rose from 84.8 percent in 2009 to 93.6 percent in 2010 while Japan saw an increase from 218.6 percent to 227.0 percent during the same period. Additionally, the average debt rate of the G-20 countries has also increased from 75.1% to 80.2%. This means that Korea’s fiscal health is very sound compared to the major developed countries.
During the 2009-2013 period, the ministry plans to curb the annual total expenditure growth rate at 4.2 percent, lower than the total revenue growth rate, which is at 5.6 percent. As such, we will be able to achieve balanced finance in 2013-2014 and hopefully maintain the national debt ratio below 40 percent of the GDP and around mid-30 percent by 2013.
Q: Enhancing the efficiency of fiscal spending is essential for restoring fiscal soundness. What does the government do in this regard?
A: The government is devoting itself to execute the budget in a thrifty and efficient manner so that limited fiscal resources may be properly invested to support our causes of restoring the economy and stabilizing our citizen’s livelihoods.
As for fiscal expenditure, related ministries joined forces to establish a task force and eliminated similar or overlapping projects. The task force also terminated or reduced spending in temporary projects reflected in the 2009 supplementary budget, according to their performance evaluations. To prevent loopholes in budget execution, the Budget Office and line ministries are in the process of restructuring the delivery systems of Social Welfare, Agriculture, R&D, and the Information Systems fields. Particularly in social welfare, an integrated system of Social Welfare Management Network is up and running since this January.
Moreover, the government decided to freeze the government officials’ paychecks this year for the second time in a row to set an example of taking the initiative to cope with the financial crisis. The government also cut the operating expenses of the public institutions below the previous year’s figure.
Furthermore, the government will increase the tax base by consolidating and eliminating tax exemptions and reductions, and strengthen the areas in which the government can adopt the innovations of the private sector and utilize their resources, such as Foregoing Private Investment, the Land Bank system, and Public-Private Partnerships (PPPs) in infrastructure developmenti. nw

YOO SungKull, deputy minister for budget at the MOSF