Government Aims for Balanced Budget in 2013

Spending kept 4 percentage points lower than revenue increase in the 2012 budget

As general and presidential elections are slated for this year, political circles on both sides of the aisle are scrambling to appeal to voters with a flood of populist election campaign pledges.
Despite these moves, Minister of Strategy and Finance Bahk Jaewan said, "The government is striving to achieve a balanced budget on schedule and without a hitch to ensure that the state's coffers have enough funds for the preemptive measures needed to prevent future crises."
"This year's budget places the priority on bracing for possible future crises by advancing the target for achieving a balance to 2013, one year earlier than originally planned; stabilizing the livelihoods of low-income earners; and focusing on investments for creating jobs so as to improve the lives of people in low and middle-income brackets. This is designed to not only maintain fiscal soundness from a mid- to long-term perspective, but also to take steps to cope with the sagging economy," he said. The following are excerpts from NewsWorld's e-mail interview of Minister Bahk in which he addressed the budget, the national debt, and the Korea-U.S. Free Trade Agreement.
Question: Can you tell our readers about the major policy tasks the ministry will implement during 2012 and the direction of the policies?
Answer: The major economic tasks for this year are to invigorate the national economy and stabilize the lives of low-income citizens by coping with external and internal uncertainties.
First of all, we have to wisely overcome the external and internal risks surrounding our economy, such as the eurozone debt crisis, political unrest in the Middle East, and the nation's parliamentary and presidential elections.
To this end, the Ministry of Strategy and Finance will examine policy steps to address external changes in advance and build a foundation to ensure a stable supply of raw materials and to boost inter-ministry coordination and fiscal discipline.
Steps to sustain the vitality of the economy will also have to be taken so that the exacerbation of external conditions will not cause the economy to sag.
The government will redouble efforts to stabilize the lives of those with low incomes so the worsening of economic conditions will not further exacerbate their suffering.
The MOSF will devote itself to successfully implementing a price stabilization responsibility system in which government officials are assigned the tasks of curbing price hikes and accelerating structural reform so as to bring Korea's price management system in conformity with those of advanced countries. The government plans to set up a social safety net so that vulnerable citizens who want to work can be provided with the most needed welfare services, but spending on education, housing, medical fees, and other living costs can be reduced so customized welfare service systems can be established.
Q: What are the main focuses of the 2012 government budget?
A: The total revenue of the 2012 budget is set at 343.5 trillion won, up 9.3 percent from the 2011 revenues, while the total spending of budgets and funds is 325.4 trillion won, a 5.3 percent increase over the 2011 spending but 4.0 percentage points less than the revenue increase of 9.3 percent.
This year's budget places a priority on bracing for possible future crises by advancing the target for achieving a budget balance to 2013, one year earlier than originally planned; stabilizing the livelihoods of low-income earners; and focusing on investments for creating jobs so the lives of people in low and middle-income brackets can be improved. This is designed to not only maintain fiscal soundness from a mid- and long-term perspective, but also to take steps to cope with a sagging economy.
To be specific, the 2012 budget puts first priority on creating jobs. It focuses on establishing a virtuous cycle of work, economic growth, and better welfare systems. The government plans to provide 10.5 trillion won in financial support, a 10.8 percent increase over the previous year, to help start-ups run by young entrepreneurs and other top four job creation projects, and for subsidizing part of the medical insurance premiums for low-income workers as part of the government's efforts to create a job-creating environment and improve work capabilities.
The second priority is securing welfare tailored to the needs of vulnerable and middle-income people ― providing customized welfare services that are suitable to beneficiaries. The government set aside 27.4 trillion won, a 23.2 percent rise from 2011, for expanding the most needed core welfare services such as daycare, education, housing, and health care for each stage of life, and providing customized welfare services.
The third and last focus is on invigorating the national economy and bracing for the future. The current fiscal year's budget puts an emphasis on increasing domestic demand through expanded investments in social overhead capital and more sophisticated service industries, thus countering the fallout from the global fiscal crisis on the real economy as well as developing future growth engines by nurturing green growth-related industries and cultivating human resources.
Q: How does the government plan to achieve a budget balance?
A: The government has recognized the need for attaching top priority to the task of restoring fiscal soundness, which has been undermined since the 2008 global financial crisis, in order to fend off the next potential fiscal crisis caused by soaring welfare demand, the reunification of the Korean Peninsula, or another global economic crisis.
In this regard, the national fiscal management plan for 2011-2015 calls for advancing the target for achieving a balanced budget to 2013 and restoring Korea's national liability to the levels of the pre-financial crisis period.
In order to obtain these targets, the government will maintain stern fiscal discipline by keeping the spending increase lower than the revenue growth rate until the country achieves a balanced budget. Accordingly, the 2012 spending increase is set at 4 percentage points lower than the revenue increase.
The government is striving to achieve a balanced budget on schedule and without a hitch to ensure that the state's coffers have enough funds for the preemptive measures needed to prevent future crises.
Q: Will you elaborate on current liability levels and future management plans and prospects?
A: The nation saw national debt soar, which was inevitable due to the government's aggressive fiscal policies designed to overcome the 2008 global financial crisis.
But thanks to the government's strong spending restraint and rising revenues in the post-crisis era, the nation has seen the national debt drop at a fast pace from 33.8 percent of gross domestic product (GDP) in 2009 to 33.4 percent in 2010.
Korea's national liability levels are stable compared to those of major countries. The percentage of the nation's national debt to GDP, which stood at 33.4 percent in 2011, was roughly one-third of the average of 97.9 percent for OECD countries. Korea saw its national debt to GDP increase by an annual average of 2.8 percent during the period between 2008 and 2010, lower than the comparable figure of 10.1 percent for OECD countries.
The government plans to continue to lower the national debt so as to secure enough resources to brace for another crisis and cope with mid- and long-term fiscal risks, such as the low birthrate and the aging of society.
As indicated in the national fiscal management plan for 2011 to 2015, the government plans to keep the nation's debt-to-GDP in the low 30 percent range, the level before the global financial crisis, and below the high 20 percent range in 2014 or afterwards.
To this end, the government plans to redouble efforts to maintain fiscal soundness by strengthening fiscal discipline, improving the efficiency of spending, and expanding the tax revenue base.
Q: The Korea-U.S. (KORUS) Free Trade Agreement is to take effect this year. What economic benefits will the implementation of the trade pact bring to Korea?
A: After the KORUS FTA goes into effect, Korea will see its so-called economic territory, in which goods and services can be traded free of customs due to FTAs, expand to 60.9 percent of the global economy, placing the country third worldwide after Chile and Mexico. It means that Korea could emerge as a trade power with a free trade area covering Europe, North America, and Asia.
Korea is expected to get a jumpstart in the United States through the trade pact ahead of its rivals such as Japan, China, and the EU, and take a step toward achieving US$2 trillion worth of trade.
The pact is likely to serve as an opportunity to create new growth momentum for our economy and new jobs by expediting the introduction of advanced U.S. systems and the improvement of the environment for inducing foreign direct investments.
A report released by a state-run think-tank last August predicted that the implementation of the KORUS FTA would raise real GDP by 5.7 percent in the long term and create 350,000 jobs. According to the forecast, Korea's trade with the world will grow by US$2.77 billion annually and its surplus from trade with the U.S. will expand by US$140 million each year.
To strengthen the economy after the FTA goes into effect, the government has come up with a package of steps by appropriating 54 trillion won worth of government budgets to cope with the damage that may be sustained by agriculture and other vulnerable sectors.
On top of the economic benefits, the trade pact will likely enhance the nation's global standing and further upgrade the Korea-U.S. alliance in political, diplomatic, and cultural fields. nw

Minister of Strategy and Finance Bahk Jaewan