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[Economic Opinion] New Budget for New Reinvigoration

Korea’s 2021 Budget

 Almost everywhere, the season for the 2021 budget has arrived. Like others, the National Assembly of Korea is busy reviewing, assessing, and possibly amending the government proposal put on the parliament floor last September. As usual, it would be one heck of a battle between the ruling party and the opposition party in its review, rendering its passage delayed way beyond the deadline, which is 30 days before the beginning of the new fiscal year. But, this year seems to be quite different, expecting a quick passage on two grounds; one being that the COVID-19 pandemic will mandate a fast budgetary resolution as was the case for a series of supplementary budgets last year, and the other being that the ruling party commands an overwhelming 60 percent majority in the assembly, which will stymie any effort by the opposition party at obstructing its passage. Indeed, the opposition party taking up one-third of the seats actually have no power to put a brake on its passage within the deadline of November 30, 2020.

Goal of Next Year’s Budget

 This time, the goal of the budget is set as “conquering COVID-19 and the realizing grand transformation towards a global leading nation.” The total budget plan for 2021 is KRW 555.8 trillion, an increase of 8.5 percent over the year 2020. The biggest chunk of the expenditures is allotted to the health, welfare and work projects, which will consume 36 percent of the total expenditure by an amount of KRW 199.9 trillion. The second biggest slice is the budget for administration and education, which will absorb 28.3 percent of the entire budget of KRW 157.5 trillion. While these two expenditure categories of health, welfare and work as well as administration and education are rather ordinary and routine expenditures, the most conspicuous change in this year’s budget plan is the proposal’s emphasis being placed on the four budget categories of environment, energy, SOC, and R&D investments.

Emphasis on Environment, Energy, SOC, and R&D

 In the energy area, the total budget is KRW 29.1 trillion, 22.9 percent up against last year. In the environment category, the plan’s scheduled budget is KRW 10.5 trillion, a 16.7 percent increase over the last year. In the SOC category, the plan ascribes KRW 26.0 trillion, an increase of 11.9 percent, and the R&D sector’s total budget is KRW 27.2 trillion, a 12.3 percent rise against 2021. These four spending areas exactly match the top four categories with highest growth rates. All four categories together take up a total of KRW 92.8 trillion, and showed a 15.9 percent increase over a year before.

The budget for various energy projects, increasing 22.9 percent over the year before, is quite understandable under the grand design of the Green New Deal, of which major projects include developing renewable energy and revolutionizing the mobility industry with electricity and hydrogen vehicles. The environment related budget is increased 16.7 percent and its core project is establishing energy efficient smart green cities all across the nation. Also, the government is targeting to refurbish industrial complexes in such a way to drastically reduce carbon emissions compatible to international standards.

All the projects under the budgetary categories of energy and environment are inevitably related with R&D and SOC investments, because many of those projects require building structures, equipment and research. Therefore, it may not be pertinent to classify those four fields separately as to integrate energy, environment, SOC and R&D investments. Indeed, the details of Korean New Deal projects are so intermingled with each other that it is difficult to put in different headings. In that regard, the Digital, Green, Human, and Regional new deals are just different phases or faces of the same entity, requiring a comprehensive look and evaluation, instead of a piecemeal and separate approach.

Implications of the 2021 Budget

 The New Deal budget of 2021 is not without challenges as were the case for all the previous years' budget plans. In the time of such a national crisis such as COVID-19, it is legitimate not to be bound by a rigid deficit shackle to provide sufficient minimum vitality to small businesses and the unemployed labor force. Actually, it is the ultimate mandate for the government to provide such emergency remedies ASAP, and the budget plan contains about KRW 199.9 trillion for that purpose. But the government cannot provide such emergency measures indefinitely. These government measures are for short expediencies. The real task of the government is to revitalize economic competitiveness and productivity. It is strongly believed that the Korean New Deal projects are designed solely for that purpose.

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

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