3-year Consecutive High-Intensity Expenditure Structure Adjustment, Policy Project Funding Policy
“(Sejong=Yonhap News) Policy Team = It has been reported that the government plans to set a ‘zero’ increase rate for discretionary spending as the guiding principle for next year’s budget preparation.”
“Although the medium-term growth rate of discretionary spending is only 2.0% on average, even that is deemed unattainable given the current fiscal conditions. In this scenario, new project funding must be covered through departmental ‘expenditure structure adjustments’.”
“It is said to be an inevitable measure in a structure where obligatory expenditures, which incur fixed expenditures annually, are expected to increase to the 20 trillion won range each year starting from next year.”
“According to government officials on the 19th, such principles were emphasized at the ‘2024 National Financial Strategy Conference’ held on the 17th.”
“Next year’s total expenditure increase will essentially be filled with an increase in obligatory expenditures.”
“Deputy Prime Minister and Minister of Planning and Finance, Choi Sang-mok, reportedly explained the urgent fiscal reality of a sharp increase in obligatory expenditures at a private meeting.”
“As a result, it is expected that a ‘prior restructuring within the existing discretionary spending range to cover new project costs, followed by new allocations’ will be carried out by each department.”
“An official stated, ‘There is no room to increase discretionary spending,’ explaining that ‘to pursue new budget projects in each ministry, adjustments to the expenditure structure of existing projects must be made.'”
“Another official stated, ‘The need to identify and clean up unnecessary parts from existing project budgets was repeatedly emphasized.'”
“Obligatory expenditures are budget items specified by law, such as public pensions, health insurance, local government transfers, and local education finance grants, which the government cannot arbitrarily reduce. It is a concept that is opposite to discretionary spending, which the government can reduce when necessary.”
“According to the fiscal management plan for 2023-2027, obligatory expenditures will increase from 347.4 trillion won this year to 373.3 trillion won next year, an increase of approximately 26 trillion won. It is estimated to increase to 394 trillion won in 2026 and 413.5 trillion won in 2027, with increases of 20.6 trillion won and 19.5 trillion won respectively.”
“With obligatory expenditures sharply increasing from next year, their share of total expenditure will surge from 52.9% this year to 56.1% in 2027.”
“In this situation, the fiscal authorities judge that apart from discretionary spending structure adjustments, there is no other way to secure new budgets without additional national debt.”
“The ‘high-intensity expenditure structure adjustments’ carried out in the 20 trillion won range for two consecutive years are expected to be even more intensively enforced this time.”
“The government is also not ruling out addressing obligatory expenditures in the medium to long term.”
“A top priority is seen as dismantling the barricades of education finance grants, which have excess budgets due to a rapid decline in births. This was the reason why education finance was brought to the table at the ‘Financial Strategy Innovation’ session of the National Financial Strategy Conference.”
“However, given the need to coordinate with opposition parties and the education sector due to legal revision issues, it appears to be a challenge to achieve solely through administrative will.”
jun@yna.co.kr