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Gov't advised to be prudent in fiscal spending: paper

All News 12:10 June 13, 2017

SEOUL, June 13 (Yonhap) -- South Korea should be cautious in expanding fiscal spending despite the surge in government revenue in recent years, a parliamentary researcher said Tuesday, insisting the earnings increase was backed by a real estate boom that may not be sustainable.

The Seoul government has submitted an 11.2 trillion won (US$9.89 billion) supplementary budget to help create 110,000 new jobs. Major opposition parties reacted negatively, saying the extra budget to create new jobs violates the National Finance Act, which stipulates an extra budget can only be drawn in cases of war, massive natural disaster, economic recession, mass unemployment or crucial changes in cross-border relations.

President Moon Jae-in argued that current conditions in the job market represented a crisis that will lead to a nationwide disaster if left unattended.

"Revenue from real estate transfer and securities transaction taxes have increased due to the rise in the property market since late 2014, leading to the increase in capital gains of private citizens and enterprises and income and corporate tax revenues," Shim Hye-jeong of the National Assembly Budget Office said in a paper carried in the Korean Journal of Public Finance.

Shim, however, was skeptical of the continued rise in the property market, citing the lack of recovery in the real economy.

She feared government revenue will reduce drastically upon any increase in interest rates which will dampen the property market.

"Any fiscal spending expansion based on temporary government revenue increases will result in chronic aggravation of the fiscal balance," Shim said, calling on the government to benchmark the Organization for Economic Cooperation and Development in coming up with a property value-adjusted budget balance.

International ratings agency Moody's, meanwhile, said Monday the extra budget will not lead to a rise in government debt because it is financed by higher-than-expected tax revenue and last year's budget surplus, predicting Seoul's debt ratio will "stay stable at slightly below 40 percent of GDP over the next three years."

"Beyond that horizon, growth in the public sector workforce, along with other campaign promises such as enhanced welfare programs, will lead to higher, hard-to-reverse current spending," Moody's said.

President Moon Jae-in seeks parliamentary support for his government's extra budget in his state of the nation address at the National Assembly in Seoul on June 12, 2017. (Yonhap)


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