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Moon proposes his third supplementary budget

But the extra spending falls short of the IMF’s 9 trillion won target
Apr 25,2019
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Finance Minister Hong Nam-ki, second from right, holds a press conference on the supplementary budget at the ministry’s office in Sejong on Monday. [YONHAP]
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The government has proposed a 6.7 trillion won ($5.8 billion) supplementary budget, which will be more than half funded with treasury bond sales.

It expects the spending will boost economic growth by 0.1 percentage points and reduce fine dust by 7,000 tons on top of the original 10,000 ton reduction goal.

The government expects 73,000 jobs to be created by the supplementary budget.

Under the proposal, 2.2 trillion won will be committed to improving public safety, which includes fine dust reduction, while 4.5 trillion won will go towards stimulus spending.

The supplementary budget will be submitted to the National Assembly today.

In terms of financing, 400 billion won will come from last year’s surplus, while 2.7 trillion won will come from the special accounts of public companies and public funds.

The treasury bond issuance will add another 3.6 trillion won.

This is the fifth consecutive year that the government has drawn up a supplementary budget, and the third such budget under the Moon Jae-in administration.

The budget committed to fine dust reduction includes 475.9 billion won to retire outdated diesel cars and construction machinery as well as 108 billion won for emission-reduction systems in coal mines and small factories.

Other projects include the support of low nitrogen dioxide emission boiler sales. The government plans to subsidize the sale of 300,000 of these boilers, up from the 30,000 that was initially planned. To increase the uptake of the boilers, the subsidy is being lifted to 60 percent from 40 percent.

A total of 210.5 billion won will go towards electric vehicles (EV) or hydrogen fuel-cell car filling stations.

The government is directing 94 billion won to support Gangwon in the wake of deadly and destructive wildfires earlier this month. Funding for 2,000 jobs and additional helicopters is included.

Stimulus spending will include 1.1 trillion won of export support, while another 1.5 trillion won will go towards the social safety net, which covers employment benefits and 600 billion won to create jobs for people in difficult circumstances.

A total of 69.2 billion won will be directed toward the shipping industry. According to the Ministry of Trade, Industry and Energy, the funds will be used to help local shipyards produce more environmentally friendly vessels, such as liquefied natural gas (LNG) ships. The support follows a Tuesday announcement from the ministry that it would maintain tax cuts and subsidies to regions affected by the shipbuilding industry’s continuing slump.

“I am here with the hope of resolving the fine dust problem that is threatening the health of our people and the uncertainties of our economy as fast as possible,” Finance Minister Hong Nam-ki said in explaining the need for the supplementary budget.

“Recently, Greenpeace announced that last year the density of ultrafine dust in Korea was the second worst among the OECD countries,” Hong said. Chile suffered the worst fine dust pollution.

The finance minister stressed that the worsening air pollution is not only threatening public health but is also affecting the economy by reducing household spending as many people are reluctant to go out.

“It is having a negative influence on the economy, affecting the production activities of companies,” Hong said. “This is not only an environmental problem but a risk to our public’s life and national economy.”

He also mentioned the increase in downside risk since policies were originally written up for 2019.

The finance minister warned that the supplementary budget can only do so much in supporting the economy, and added that the government will employ all means available, including deregulation and financial and tax support, to encourage private investment and recruitment.

“Timing and speed is most important in executing the supplementary budget,” Hong said in encouraging the lawmakers to pass the proposed spending as quickly as possible.

The Bank of Korea last week was the latest to lower Korea’s growth outlook for this year, as it moved the forecast from 2.6 percent to 2.5 percent. Several major indicators, including those measuring exports and investments, have been worsening more than previously expected.

Hong said the amount proposed is sufficient, although it is less than what was suggested by the International Monetary Fund (IMF). The IMF said that the supplementary budget needs to be at least 0.5 percent of the GDP, which is roughly 9 trillion won.

“Considering the 10.5 trillion won that was granted to local government and education offices earlier this month, the size of the supplementary budget is not small,” Hong said. “We also considered the size of this year’s budget.”

Hong added that the budget is significant in terms of lowering the emissions of fine dust.

“We have raised our target for lowering fine dust from 10,000 tons to 17,000 tons, which means, with the help of the supplementary budget, the emission expected for this year will drop from 284,000 tons to 277,000 tons,” Hong said. “We have set aside 1.5 trillion won from the supplementary budget on issues related to fine dust, which is not small considering that related budget for this year has been set at 2 trillion won.”

The finance minister dismissed concerns that issuing treasury bonds would hurt the nation’s fiscal position.

“Last year, using the higher tax collections, we were able to reduce treasury bond sales by 14 trillion won, while we were also able to pay off 4 trillion won worth of treasury bonds early,” Hong said.

The government estimated that the issuing of the treasury bonds will only raise the country’s debt to GDP ratio 0.1 percentage points to 39.5 percent.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]