South Korea Government to Increase Spending to Spur Growth Next Year

By Kwanwoo Jun Features Dow Jones Newswires

South Korea plans to boost government spending next year to fulfill left-leaning President Moon Jae-in's policy agenda, underpinned by an expected increase in tax revenue.

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The national budget plan announced Tuesday by the Ministry of Strategy and Finance calls for a 7.1% rise in total spending for 2018 to 429.0 trillion won ($380 billion), up from a 3.7% increase this year.

Revenue is expected to grow 7.9% next year to 447.1 trillion won, compared with an expected 5.9% gain this year, the ministry said.

The budget plan reflects the Moon administration's pledge to keep its fiscal policy "expansionary" in the coming year to help finance its much-touted agenda to create public-sector jobs, expand social welfare for the public and boost household incomes in a government-led push for economic growth.

Mr. Moon, since taking office in May, has passed a $10 billion supplementary budget this year and a 16% increase in the country's minimum wage. The liberal leader has also proposed a tax revision, focused on higher levies on wealthy people and big corporations.

Despite the planned spending increase, the finance ministry expects the country's fiscal health to improve marginally next year, with the fiscal deficit likely to be 1.6% of gross domestic product -- narrower from an expected 1.7% of GDP in 2017. Government debt is expected to edge down to 39.6% of GDP in 2018 from an estimated 39.7% this year, it said.

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The Moon government plans to submit the new budget bill to parliament in early September. Mr. Moon's ruling party holds 120 seats in the 300-seat National Assembly, and a simple majority is needed to pass the bill. His governing Democratic Party struggled to get support from other parties before eventually passing this year's extra budget bill in July.

The Moon administration has argued that a greater role of fiscal policy is necessary to prop up the Korean economy, which is losing steam after decades of rapid growth, as the country faces demographic challenges such as an aging population and one of the world's lowest birthrates.

The central bank last month forecast South Korea's economy will expand 2.8% this year, faster than an earlier estimate of 2.6% growth, as exports are picking up thanks to overseas demand even though domestic demand still remains soft.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

August 28, 2017 21:14 ET (01:14 GMT)