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[Economic Opinion] Brand New Budget for New Investments

By this time of the year, both the government and the National Assembly are to engage in one of the toughest yet most daring tug-of wars ever on which the nation’s entire economic future rests; namely the congressional approval of the budget plan for the fiscal year 2020. Every year, the annual event of the congressional budgetary review is fraught with partisan contestation but often the government plan has to face bipartisan challenges. Anyway, it never goes smoothly as scheduled, always ends up violating the deadline which is 30 days before the end of the fiscal year. Indeed, before 2012 when the Advancement of the General Assembly Act was enacted, the National Assembly failed to meet the deadline 11 out of 12 years from 2000. To speed up the process of budgetary review in the National Assembly, the Act allows an automatic balloting on the assembly floor when congressional sub-committees fail to reach an agreement by the deadline, which is November 30, on the mandated budgetary reviews.

The Ministry of Finance presented the 2020 budget to the National Assembly on September 3, 2019, approximately 120 days before the start of the fiscal year 2020. The 2020 budget is proposed at KRW 513.5 trillion, equivalent to USD 430 billion, a 9.3 percent increase to the 2019 budget, which was up 9.7 percent from the year before. The rate of expansion is quite comparable to the 10.6 percent in 2009 when there was the emerging global recession. It was reported that a department inside the ministry argued for a much greater expansionary plan, in accordance with the recommendations from the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD).

Before making any judgments on the size of the budget, it seems far more pertinent to understand where the budget is allocated. As the grand target of “People and Economic Strength” shows, its focus is laid upon the economic development for the benefits of the citizens and promulgation of economic strength through innovation. Although there are five major pillars, two of the most important objectives of the 2020 budget are R&D investment in innovation and the promotion of industrial vitality.

For R&D innovation investment, the 2020 budget allocates KRW 24.9 trillion, which is 17.3% percent up from the year before. The first priority is given to the local supply of the key industrial materials and parts, which were usually imported from abroad. Some materials are strategically selected for domestic production, and others are given technical as well as financial support to facilitate local procurement. Another important area for R&D investment is the so-called DNA projects, which is an acronym of data, 5G network and artificial intelligence. Also, the budget specifically targets innovation of the big-three industries, namely the bio-health, future smart car, and system semi-conductor industries. In addition, the budget is targeting to help create the 2nd venture boom after the successful first one in the early 2000s under the Kim Dae-jung administration.

As all these areas require human assets who can carry out the research and investment, the government budget allots its substantial portion to promote educational programs and research infrastructure. Basic innovation studies and research are given prime priority under the 2020 budget, and special consideration is given to the R&D of the SMEs, where most of the state-of-the-art technologies are tested and incubated. Recognizing the importance of building smart factories and developing new environment technology for air quality improvement, the 2020 budget allots substantial resources for the causes.

Another important pillar of the 2020 budget is the promotion of industrial vitality. More specifically, the budget focuses on the promotion of the export industries and the enhancement of industrial competitiveness. Also, the budget tries to help revitalize the old towns as well as the rural areas by building new infrastructure and facilities for healthcare and cultural activities. With this new plan, more than 320 urban towns and 170 fishery villages are expected to transform into modern hubs for new residents and renewed viability.

Of course, the audacious 2020 budget is not without challenges. In fact, it will have to face many tumbling blocks before it becomes effective. First of all, ferocious criticism from the opposition parties immediately lies ahead. This could delay the usual congressional approval procedure by days, or even weeks after the deadline. More harsh criticism may come from concerns about fiscal soundness. The real issue is whether the budgetary expenditures are really productive or not. If the budgetary programs are inefficient and unproductive, then all expenditures from tax revenues will be eventually wasted without much good. However, if the programs are well designed and efficient enough to be productive, then the outcome will be the multiple of the expenses, creating jobs, spurring economic growth and tax revenues, rendering the budget plan most successful. So, talks in the National Assembly should focus on how to make the each and every budget program efficient and productive. In times of a looming global recession, the expansionary budget is inevitable and easy for any nation, but success is very hard to come by because successful budgetary programs are not as easy as to set up a new budget.

By Professor Se Don Shin
Dean, Sookmyung Women’s University

The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA

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