South Korea drafts second extra budget as new leader seeks to spur growth
The South Korean government is expected to submit the extra budget proposal to parliament on June 23. (EPA Images pic)
SEOUL : South Korea's new administration proposed today US$14.7 billion in extra government spending to support sluggish domestic demand, as President Lee Jae-myung makes economic recovery his top policy agenda.
The supplementary budget plan totalling ₩30.5 trillion announced by the finance ministry includes ₩20.2 trillion (US$14.7 billion) of new spending to spur economic growth and support vulnerable sectors, while it will also make up for ₩10.3 trillion from an expected shortfall in tax revenue.
The second extra budget of the year comes two weeks after Lee, who has vowed expansionary fiscal policy, won a snap presidential election on June 3 and less than two months since the first supplementary budget of 13.8 trillion passed in May.
'Economic conditions and difficulties in people's livelihoods are very serious, and this extra budget means government finances will play a little more active role,' vice finance minister Lim Ki-keun told a media briefing.
South Korea's central bank last month slashed its economic growth forecast for this year to 0.8% from 1.5%, citing heightened uncertainty over US tariffs, as it lowered interest rates for a fourth time in its current easing cycle and signaled more rate cuts.
Asia's fourth-largest economy unexpectedly contracted in the first quarter amid US President Donald Trump's sweeping tariffs and domestic political turmoil sparked by former President Yoon Suk Yeol's martial law decree in December.
The biggest spending will be Lee's flagship policy of a universal cash handout scheme for consumers, providing ₩150,000-500,000 in vouchers to every citizen and totalling ₩10.3 trillion.
Lee was one of the first to introduce a cash handout scheme in South Korea when he was mayor of Seongnam City, which was adopted nationwide several times during the COVID-19 pandemic under the previous liberal administration of Moon Jae-in, even as critics questioned the effectiveness of the policy.
Other spending plans include financial support for the construction sector, investment in artificial intelligence as well as small and medium-sized enterprises, and debt restructuring programmes for small businesses.
Out of the combined total of ₩30.5 trillion, ₩19.8 trillion will be financed by issuing additional treasury bonds, according to the finance ministry.
The second extra budget will raise the country's fiscal deficit to 4.2% of gross domestic product (GDP) this year, up from the previous estimate of 3.3% after the first extra budget, and government debt to 49.0% of GDP, from 48.4%.
The government will submit the proposal to parliament, controlled by the left-leaning ruling Democratic Party, on June 23.
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