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(EDITORIAL from The Korea Times on Sept.1)

All Headlines 07:04 September 01, 2016

Dubious 2017 budget
Fiscal steps needed to nurture new growth engines

Next year's budget has been set at 400.7 trillion won ($360 billion), up 3.7 percent from this year's. Given that the budget has exceeded 400 trillion won for the first time, next year's budget appears to be expansionary. A closer look, however, suggests that the 2017 budget, proposed by the Ministry of Strategy and Finance Tuesday, is neither expansionary nor contracting.

That's primarily because the 3.7 percent budget increase falls short of next year's rise in total revenue, which is estimated at 6 percent. The finance ministry expects the nation's total revenue to reach 414.5 trillion won in 2017, up 6 percent or 23.3 trillion won from 2016. The budget increase is also smaller than the government's nominal economic growth projection of 4.1 percent for next year.

This seemingly non-committal budget for 2017 appears intended to kill two birds with one stone ― pump-priming and fiscal balance. But there is a risk of losing both. It's difficult, in particular, to expect such a dubious budget to help stimulate the sagging economy.

The finance ministry's conservative budgetary approach runs counter to the recent global trend in which governments make greater contributions to economic growth. The ministry also can't avoid criticism of being passive at a time when uncertain external conditions ― Brexit, China's slowdown and America's interest rate hike ― call for more active fiscal policies.

No less problematic is that the government has no alternative but to repeat the formation of supplementary budgets because of the additional demand for fiscal measures the following year. In fact, the incumbent administration has drawn up three extra budgets over the last three and a half years.

Given the prolonged global economic slump, it's imperative that the government step up its pump-priming measures while pushing for structural reform aggressively.

The 2017 budget rightfully envisions curbing expenses for infrastructure projects such as roads but expanding those for job creation and the low birthrate.

Spending for health, welfare and labor hit an all-time high of 130 trillion won, which accounts for 32.4 percent of next year's total budget. Given the low fertility rate, the ageing population and the protracted economic downturn, expenses for these sectors would go up steeply, but it's questionable if the money is worth it.

What's worrisome is that our state debt would swell by 45 trillion won to 683 trillion won next year, which would cause the ratio of state debt to GDP to surpass 40 percent for the first time ever. True, more than 200 trillion won in state debt increased during the current Park Geun-hye administration, raising doubts about our long-term fiscal soundness.

The most serious problem with the 2017 budget is that budget planners appear to have drawn up the budget without any worry about the nation's future growth engines. The growth of spending for state research and development, in particular, is set at a modest 1.8 percent, and its percentage in total budget fell from 4.9 percent this year to 4.8 percent for 2017. This is quite regrettable, considering that sustained growth would be impossible without well-defined growth strategies.
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