Seoul goes out of sync with monetary tightening via rare budgetary increase in Jan

[Photo by Lee Seung-hwan]

The South Korean government on Friday proposed further loosening in record-sized 608 trillion won ($513 billion) budget for this year by seeking the first increase in January since the middle of the Korean War and decoupling from monetary tightening through the third rate increase in January in a span of five months.

The government is packaging a supplementary budget of 14 trillion won upon confirming 10 trillion won in excess tax collection by November. ¡°The supplementary budget will specifically target to aid merchants hardened by tightened mitigation actions against virus through the extra tax revenue to normalize lives as early as possible,¡± said deputy prime minister for economy Hong Nam-ki.

The government will dole out 3 million won to small businesses whose revenue decreased from tightened business restrictions after 1 trillion won handout in December.

Budget to subsidize business losses will be expanded to 5.1 trillion won from 3.2 trillion won.

The last time Korea increased budget just into the new year was in 1951 during the 1950-1953 Korean War. Korea packaged a supplementary budget in February in the wake of Asian financial crisis.

The 14 trillion won would enlarge this year¡¯s fiscal spending budgeted at fresh record-high of 607.7 trillion won.

Tax revenue was 10 trillion won more than expected by November after upward revisions by 19 trillion won in November and by 31.6 trillion won in July to produce 60 trillion won in excess of original target.

But since the year-end revenue cannot be used until April, the government would have to finance most of the budgetary increase from additional debt issues.

National tax revenue between January and November last year was 323.4 trillion won, 9.1 trillion won higher than last year's second supplementary revenue budget. Excess tax revenue is expected to reach 30 trillion won with the addition of December tax revenues which have not been calculated yet.

Based on the original budget, national debt was already estimated at 1,064.4 trillion won and the debt-to-GDP ratio at 50.0 percent.

Debt ratio will shoot up after additional debt issues. Government bond yields have been hovering above 2.0 percent even before the Bank of Korea on Friday pushed up the benchmark rate to 1.25 percent due to oversupply concerns.

Budgeting and debt levels are bound to go higher after a new president is sworn in in May.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]