Seoul: The Democratic Party of South Korea and the government have reached a consensus on implementing a supplementary budget of 25 trillion won ($16.7 billion) aimed at mitigating the economic ramifications of the ongoing Middle East crisis. This budget is designed to alleviate the financial pressures caused by soaring oil prices on logistics and fuel costs, offer support to vulnerable households, small business owners, farmers, and fishermen, and provide aid to export companies impacted by the turmoil in the Middle East.
According to Yonhap News Agency, the supplementary budget plan, which follows President Lee Jae Myung's recent comments on income support, is anticipated to include direct cash assistance through local-currency programs. The necessity of this budget stems from the challenges posed by high oil prices and a declining currency, making swift and sufficient financial intervention crucial. However, the proposed budget exceeds initial estimates by 5 trillion to 10 trillion won, raising concerns about whether its size and composition have been meticulously evaluated.
Democratic Party leader Jung Chung-rae emphasized the urgency of the situation, vowing that the government would act within the "golden time" for passing the budget. He committed to securing its approval in the National Assembly by the 10th of next month, claiming it would be the fastest legislative process in history. Jung also cautioned against labeling the budget as a "war budget" to avoid stifling necessary debate and criticism, urging for a democratic approach rather than unilateral decision-making.
In a parliamentary confirmation hearing, Park Hong-keun, the nominee for the minister of planning and budget, announced that the budget would proceed without the issuance of additional government bonds. However, he urged caution in treating surplus tax revenue as freely available funds. If enacted, the supplementary budget would elevate this year's total budget from 728 trillion won to 753 trillion won, marking an 8.1 percent increase over last year's original budget and nearly an 11.8 percent rise compared to the previous year.
Given South Korea's potential growth rate in the 1 percent range, such rapid fiscal expansion is atypical. The government has already forecasted a deficit exceeding 100 trillion won for this year. Experts suggest that instead of immediately deploying anticipated surplus revenues, it would be more prudent to utilize them in reducing deficit-financed debt.
The ongoing Middle East conflict and rising inflation expectations have already contributed to higher government bond yields. Without stringent fiscal discipline to restrict the supplementary budget to essential needs, yields may escalate further, exacerbating the financial burden on small business owners and vulnerable groups. The government and ruling party are being urged to exercise greater caution in their fiscal strategies.