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SEOUL: South Korea's new administration proposed on Thursday (Jun 19) US$14.7 billion of 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 won announced by the finance ministry includes 20.2 trillion won (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 won 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 Jun 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 per cent from 1.5 per cent, citing heightened uncertainty over US tariffs, as it lowered interest rates for a fourth time in its current easing cycle and signalled 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 won in vouchers to every citizen and totalling 10.3 trillion won.
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 won, 19.8 trillion won 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 per cent of gross domestic product (GDP) this year, up from the previous estimate of 3.3 per cent after the first extra budget, and government debt to 49.0 per cent of GDP, from 48.4 per cent.
The government will submit the proposal to parliament, controlled by the left-leaning ruling Democratic Party, on Jun 23.
