I. Overview

The government proposed a large budget for 2019. Total expenditures will be increased by 41.7 trillion won, or 9.7 percent, compared with the 2018 budget, but the impact on fiscal balance and national debt will be limited given increased tax revenues. A total of 470 trillion won will be spent to help create jobs, support future growth engines, strengthen social safety nets, support low-income households, improve citizen well- being and enhance national security.

The 2018-2022 fiscal management plan is drawn up to buttress job creation and ‘growth through innovation’, as well as to ensure fiscal sustainability.

1.Key Policies

  • Increase job creation budgets by 22.0 percent to 23.5 trillion won: Continue to support private sector job creation, increase public sector jobs and social service jobs, and promote job training and work-study
  • Boost ‘growth through innovation’: Spend more than 20 trillion won on R&D, 1.5 trillion won on a platform economy and 3.6 trillion won on the eight pilot projects1, renovate old industrial complexes and improve startup support
  • Strengthen social safety nets: Increase welfare budgets by 12.1 percent to 162.2 trillion won, reinforce small merchant support and strengthen unemployment protection
  • Improve everyday lives: Invest a total of 8.7 trillion won to improve recreation facilities, renovate old towns and improve air quality, as well as reinforce the support to increase birth rates
  • Ensure national security: Increase defense budgets by 8.2 percent to 46.7 trillion won, and increase spending on citizen safety

2.Key Features

  • (Total Revenues) The government revenues are projected to be 481.3 trillion won, an increase of 7.6 percent compared with the previous year, backed by strong corporate earnings and tax hikes.
  • (Total Expenditures) The total government expenditures will be 470.5 trillion won, an increase of 9.7 percent from the previous year, more than double the nominal growth outlook (4.4%) and the largest increase since 2000, excluding 2009 when the financial crisis were spreading across the globe.
    (trillion won, %)
    2018 Budget 2019 Budget Proposal (B) Changes
    Original (A) Supplementary B-A %
    Total Government Revenues
    - Tax Revenue    		 447.2
    268.1    		 447.7
    268.1    		 481.3
    299.3    		 34.1
    31.2    		 7.6
    11.6
    Total Government Expenditures 428.8 432.7 470.5 41.7 9.7
  • (Fiscal Balance) Deficits in the consolidated fiscal balance will rise by 0.2 percentage points compared with 2018, from 1.6 percent to GDP to 1.8 percent.
  • (Government Debt) Government debt is expected to decline by 0.1 percentage points compared with 2018, from 39.5 percent to GDP to 39.4 percent. Treasuries to fund deficits will grow from 28.8 trillion in 2018 to 30.1 trillion.
    (trillion won, %)
    2018 Budget 2019 Budget
    Proposal (B)    		 Changes
    (B-A)
    Original (A) Supplementary
    Consolidated Fiscal Balance
    (% to GDP)    		 -28.5
    (-1.6)    		 -31.4
    (-1.7)    		 -33.4
    (-1.8)    		 -4.9
    (-0.2%p)
    Government Debt
    (% to GDP)    		 708.2
    (39.5)    		 700.5
    (38.6)    		 741.0
    (39.4)    		 32.8
    (-0.1%p)
    Budgets by area(trillion won)
    2018 Budget (A) 2019 Budget
    Proposal (B)    		 Change
    (B-A) %
    Total Expenditures 428.8 470.5 41.7 9.7
    1.Health, Welfare, Employment
    - Job creation    		 144.6
    19.2    		 162.2
    23.5    		 17.6
    4.2    		 12.1
    22.0
    2.Education
    - Grants to local governments    		 64.2
    49.5    		 70.9
    55.7    		 6.7
    6.2    		 10.5
    12.5
    3.Culture, Sports, Tourism 6.5 7.1 0.6 10.1
    4.Environment 6.9 7.1 0.2 3.6
    5.R&D 19.7 20.4 0.7 3.7
    6.Industry, SME, Energy 16.3 18.6 2.3 14.3
    7.SOC 19.0 18.5 -0.5 -2.3
    8.Agriculture, Forestry, Fishery, Food 19.7 19.9 0.2 1.1
    9.National defense 43.2 46.7 3.5 8.2
    10.Diplomacy, Reunification 4.7 5.1 0.4 7.5
    11.Social order, Safety 19.1 20.0 0.9 4.9
    12.Public administration, Local governments
    - Grants to local governments    		 69.0
    46.0    		 77.9
    52.8    		 8.9
    6.8    		 12.9
    14.8

II. Budget Proposal by Initiative

Create jobs

  • Promote private sector job creation: Increase the corporate employment support for hiring young adult employees, and encourage middle-aged retirees, including the self-employed, to find jobs
  • Spend 23.5 trillion won on creating jobs for women, the elderly and the disabled
  • Create more public sector jobs: Increase social service jobs by 60,000 to 94,000 and civil service jobs, such as police officers and post office jobs, by 21,000
  • Introduce a new job training support for unskilled employees and promote work-study

Promote ‘growth through innovation’

  • Increase R&D budgets to 20.4 trillion won: Spend 1.7 trillion won on basic research for future technologies and 3.7 trillion won on SME R&D support
  • Spend a total of 5.1 trillion won on innovation: Invest 1.5 trillion won in developing a platform economy, such as a digital platform for big data analytics and AI, and establishing a hydrogen fuel cell supply chain, as well as invest 3.6 trillion won on the eight pilot projects
  • Renovate industrial complexes and promote venture startups: Invest 250 billion won in modernizing old industrial complexes and promote venture startups by providing development stage-specific support from incubation to re-investment

Strengthen social safety nets

  • Spend 162.2 trillion won on welfare: Increase basic social security benefits and other benefits for low-income households, such as basic pensions for the elderly, single parent benefits and orphan benefits
  • Increase support for small businesses: Continue to provide wage support and raise the unemployment insurance support for the self-employed and small merchants
  • Strengthen employment safety nets: Increase the amount, period and coverage of unemployment benefits, provide small businesses with up to 90 percent of social insurance contributions they have to pay for their employees, and introduce a young adult job seeker benefits, which is 500,000 won a month for up to 6 months

Improve citizen well-being

  • Invest a total of 8.7 trillion won in improving community recreation infrastructure, such as gyms, museums and libraries, renovating old urban towns and rural villages, repairing old houses and welfare facilities, and planting trees to improve air quality
  • Work to raise birth rates: Supply 15,000 houses for the newly married and expand the coverage of maternity benefits and childcare support

Ensure national security

  • Increase defense budgets by 8.2 percent: Spend 46.7 trillion won to enhance military capabilities, improve army welfare and increase reserve forces training expenses
  • Increase citizen safety: Provide mental healthcare services for suicide prevention, improve safety in construction sites and ensure road safety
  • Increase the inter-Korean cooperation fund to about 1.1 trillion won to support infrastructure development, cultural exchanges and family reunion

III. 2018-2022 National Fiscal Management Plan

1.Key Policies

  • Fiscal resources management will be focused on creating jobs, supporting ‘growth through innovation’, raising birth rates, ensuring national security and citizen safety, and supporting low-income households, and fiscal policies will be expansionary for the next five years.
  • The government will work to ensure fiscal sustainability: The government will continue to improve spending efficiency and work to increase tax revenues to support the administration’s inclusive growth.
  • Investment in citizen well-being, such as environment, safety and human rights, will be expanded, and tax systems will be restructured in a way to increase local government tax revenues.
  • The government will carefully look into how much Korean citizens can feel the difference due to the spending, and will work to reflect ideas from Korean citizens

2.Mid-term Fiscal Outlook and Fiscal Management Goals

  • Total government revenues are projected to increase at an average of 5.2 percent every year in 2018-2022.
  • Total government expenditures will be managed to increase at an average of 7.3 percent every year in 2018-2022.
    Mid-term Outlook for Government Revenues and Expenditures(trillion won, %)
    2018 2019 2020 2021 2022 Annual growth(%)
    original supplementary
    Total Government Revenues
    - Tax Revenues    		 447.2
    268.1    		 447.7
    268.1    		 481.3
    299.3    		 504.1
    312.7    		 525.4
    325.7    		 547.8
    340.3    		 5.2
    6.1
    Total Government Expenditures
    (growth, %)    		 428.8
    (7.1)    		 432.7
    (8.0)    		 470.5
    (9.7)    		 504.6
    (7.3)    		 535.9
    (6.2)    		 567.6
    (5.9)    		 7.3
  • The consolidated fiscal balance minus social security funds will post a deficit of 3 percent to GDP in 2018-2022.
  • Government debt will be managed at slightly over 40 percent to GDP.
    Mid-term Outlook for Fiscal Balance and Government Debt(trillion won, %)
    2018 2019 2020 2021 2022
    Consolidate Fiscal Balance minus Social Security
    (% to GDP)    		 -28.5
    (-1.6)    		 -33.4
    (-1.8)    		 -44.5
    (-2.3)    		 -54.2
    (-2.6)    		 -63.0
    (-2.9)
    Government Debt
    (% to GDP)    		 708.2
    (39.5)    		 741.0
    (39.4)    		 790.8
    (40.2)    		 843.0
    (40.9)    		 897.8
    (41.6)

3.Restructure Fiscal Management

  • Manage expenditures in a way to support the administration’s inclusive growth
  • Raise tax revenues by avoiding tax fraud and ending unnecessary tax breaks
  • Ensure citizen well-being by increasing investment in safety, human rights and environment protection
  • Work to increase local government tax revenues to 30 percent to the total
    2018-2022 Budget Allocation Plans by area(trillion won, %)
    2018 2019 2020 2021 2022 Average
    growth (%)
    Total Expenditures
    (growth, %)    		 428.8
    (7.1)    		 470.5
    (9.7)    		 504.6
    (7.3)    		 535.9
    (6.2)    		 567.6
    (5.9)    		 (7.3)
    Health, Welfare, Employment
    (growth, %)    		 144.6
    (11.7)    		 162.2
    (12.1)    		 179.0
    (10.4)    		 196.4
    (9.7)    		 214.3
    (9.1)    		 (10.3)
    Education
    (growth, %)    		 64.2
    (11.8)    		 70.9
    (10.5)    		 76.0
    (7.2)    		 80.1
    (5.3)    		 84.0
    (4.9)    		 (7.0)
    Culture, Sports, Tourism
    (growth, %)    		 6.5
    (-6.3)    		 7.1
    (10.1)    		 7.4
    (4.7)    		 7.8
    (4.3)    		 8.0
    (3.0)    		 (5.5)
    R&D
    (growth, %)    		 19.7
    (1.1)    		 20.4
    (3.7)    		 21.4
    (5.1)    		 22.6
    (5.5)    		 24.0
    (6.3)    		 (5.2)
    Industry, SME, Energy
    (growth, %)    		 16.3
    (1.8)    		 18.6
    (14.3)    		 19.4
    (3.9)    		 19.9
    (2.8)    		 20.2
    (1.3)    		 (5.5)
    SOC
    (growth, %)    		 19.0
    (-14.2)    		 18.5
    (-2.3)    		 18.0
    (-2.7)    		 17.7
    (-1.8)    		 17.5
    (-1.1)    		 (-2.0)
    Agriculture, Forestry, Fishery, Food
    (growth, %)    		 19.7
    (0.5)    		 19.9
    (1.1)    		 19.8
    (-0.5)    		 19.7
    (-0.5)    		 19.6
    (-0.5)    		 (-0.1)
    Environment
    (growth, %)    		 6.9
    (-0.3)    		 7.1
    (3.6)    		 7.0
    (-2.0)    		 6.9
    (-1.9)    		 6.7
    (-1.8)    		 (-0.5)
    National defense
    (growth, %)    		 43.2
    (7.0)    		 46.7
    (8.2)    		 49.9
    (6.8)    		 52.8
    (5.9)    		 55.5
    (5.0)    		 (6.5)
    Diplomacy, Reunification
    (growth, %)    		 4.7
    (3.5)    		 5.1
    (7.5)    		 5.4
    (6.8)    		 5.7
    (5.7)    		 6.0
    (5.1)    		 (6.3)
    Social order, Safety
    (growth, %)    		 19.1
    (5.2)    		 20.0
    (4.9)    		 20.9
    (4.3)    		 21.7
    (4.1)    		 22.6
    (3.8)    		 (4.3)
    Public administration, Local governments
    (growth, %)    		 69.0
    (9.0)    		 77.9
    (12.9)    		 84.1
    (7.9)    		 89.2
    (6.1)    		 94.0
    (5.4)    		 (8.0)

Future Plans

The 2019 budget proposal and the 2018-2022 National Fiscal Management Plan will be submitted to the National Assembly on August 31, after proceeding through the Cabinet Meeting on August 28.