Gov’t sticks to tight fiscal discipline with 677 trillion won budget for next year

Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok gave a preliminary briefing on the 2025 Budget Proposal and the 2024-2028 National Fiscal Management Plan at the Government Complex Sejong on August 22. Yonhap News

The government of President Yoon Suk-yeol has finalized next year’s budget at 677.4 trillion won, an increase of 3.2 percent from this year. Although the government expects better tax revenue conditions compared to this year, it plans to maintain a tight fiscal stance next year. Critics argue that the government is not adequately addressing the challenges posed by a growing elderly population and prolonged sluggish domestic demand.

The government approved the “2025 Budget Proposal” and the “2024-2028 National Fiscal Management Plan” at a cabinet meeting chaired by President Yoon Suk-yeol on August 27. The budget’s total expenditure growth rate for next year is 3.2 percent, which is not only below the growth rate of total revenue (6.5 percent) but also below the government’s projected nominal growth rate (4.5 percent). This reflects a continuation of the “tight-fisted” budgeting approach, despite the need to increase spending as the economy grows. While the growth rate is higher than this year’s 2.8 percent, it represents a more austere budget, especially considering the weak revenue base, with total revenues expected to decline by 2.2 percent during the same period.

The government explained that it limited total expenditure growth to the low 3 percent range to make next year the first year of compliance with the fiscal rule that restricts the managed fiscal deficit to no more than 3 percent of gross domestic product (GDP). President Yoon stated, “The previous administration increased the national debt by more than 400 trillion won over five years, making it difficult for the current government to function. We need to tighten our belts, drastically reduce inefficiencies, and allocate funds where they are truly needed.”

The government emphasized that it will invest heavily in public welfare initiatives, including customized support for the socially vulnerable. The livelihood benefit was increased by 118,000 won per month for a family of four, and the number of jobs for the elderly was expanded from 1.03 million to 1.1 million. The budget also addresses the low birthrate issue, raising parental leave pay from 1.5 million won to 2.5 million won and extending the spousal paternity leave benefit period from five days to 20 days. To reduce the burden of maternity leave on employers and coworkers, the subsidy for hiring substitute labor was also increased by 400,000 won.

However, there are concerns that the budget largely focuses on slightly expanding existing programs rather than introducing any significant new initiatives. Notably, the growth rate of the budget for health, welfare, and employment, which are closely tied to people’s daily lives, is 4.8 percent, the second lowest on record after 2023’s 4.1 percent.

Some argue that the role of fiscal policy has been excessively reduced amid prolonged domestic stagnation. Experts emphasize that by focusing too heavily on fiscal discipline, the government has neglected its role in expanding support for vulnerable populations and investing in the economy.

Considering the growing number of welfare recipients, such as the elderly population, the budget should at least increase at a rate that exceeds nominal growth,” said Woo Seok-jin, a professor of economics at Myongji University. “If the goal is to maintain fiscal discipline, the emphasis should be on expanding the revenue base rather than cutting spending,” he added. Nah Won-jun, a professor of economics at Kyungpook National University, commented, “The government’s tax cuts have contributed to fiscal austerity. The combination of tax cuts and austerity could push the economy into a contractionary equilibrium.

※This article has undergone review by a professional translator after being translated by an AI translation tool.