SEOUL: South Korea's government plans to boost spending to a record 429 trillion won (US$383.05 billion) next year as policy makers step up fiscal stimulus to buttress overall economic growth by funding rising welfare costs, creating jobs and stoking domestic consumption.
Total spending for 2018 will increase 4.6 per cent from a targeted 410.1 trillion for this year, which includes an 11 trillion won supplementary budget approved in July.
"We proposed it to be expansionary to support the new administration's policy pledges, as well as to aid job creation and growing needs for welfare," the ministry said in a statement.
The Moon Jae-in administration faces a hurdle in passing the bill in parliament, where Moon's Democratic Party holds only 40 per cent of the 299 seats.
The budget proposal "is the biggest boost in spending since the financial crisis," Kim Gwang-lim, a lawmaker at the opposition Saenuri Party said in a meeting after the government announced the budget plan. Kim described the proposal as a "populism budget", and added the increase in fiscal spending will amplify the financial burden for young South Koreans.
Moon Jung-hui, an economist at KB Investment & Securities, said the size of the increase was in line with market expectations.
"As the new president has been emphasizing welfare and job growth, market expected next year's budget to remain expansionary," Moon said.
The ministry will present the budget draft to lawmakers on Sep 1 for parliamentary approval. The parliamentary vote is expected in December this year.
Growth in Asia's fourth-largest economy almost halved in the second quarter, hurt by slowing construction and a slide in exports, though private consumption provided a surprising boost to output. The government has said it wants to step up fiscal spending to help spur household spending and lift economic growth.
After accounting for the higher spending budget, government debt as a proportion of gross domestic product will stay at 39.6 per cent in 2018, unchanged from this year. The fiscal deficit will be maintained at around 40 per cent of GDP through 2021, the ministry said, as it will tightly control spending increases in the next few years.
Policymakers expect a rapidly aging population to take a toll on the South Korean economy. The nation has the fastest-rising average age among the Organization for Economic Co-operation and Development (OECD) countries.
Funding an ageing population with a shrinking workforce is an area of concern for policymakers as they look to boost jobs and household income.
The Bank of Korea has cut interest rates eight times since 2012 to a record-low of 1.25 per cent, yet household spending has been slow to pick up.
Welfare is set to receive the biggest allocation of 34 per cent, or 146.2 trillion won, to provide subsidies for companies creating jobs and fund the Moon government's plans to increase social service jobs including workers at nursing homes and childcare centres.
Government budgeted expenditure for defence jumped 6.9 per cent to 43.1 trillion won as the nation seeks to modernize its military equipment to counter the rising threats from North Korea.
Budget allocation for public infrastructure will shrink by 4.4 trillion won or by 20 per cent to 17.7 trillion won next year.
The ministry plans to sell 106.6 trillion won of treasury bonds in 2018, up slightly from 103.7 trillion won for this year, finance ministry officials told Reuters separately.
Budget for the FX equalization fund, a government fund used to stabilize currency market volatilities, will be 12 trillion won for the won-denominated bonds in 2018. A similar fund denominated in foreign currencies will have a budget of US$1 billion.
(US$1 = 1,119.9500 won)