🚨 Content and Selection Background of the 10 Trillion Won 'Precision Supplementary Budget'
Today Korean Economic News | 2025.04.01
📌 Can the 10 Trillion Won 'Precision Supplementary Budget' Revive Economic Vitality?
💬 Expectations and skepticism about the economic stimulus effect are mixed regarding the 10 trillion won supplementary budget announced by the government. While analysis suggests it could raise economic growth by up to 0.34 percentage points depending on investment areas and speed, there are also concerns that the scale is too small to be effective. Experts emphasize that content and promptness are key.
1️⃣ Easy Understanding
The government has announced a 10 trillion won 'precision supplementary budget.' Let me explain what this budget is and what effects it might bring.
A supplementary budget refers to an additional budget that the government allocates beyond the already confirmed budget. It is typically created in response to economic downturns, natural disasters, or urgent national needs. The 10 trillion won supplementary budget recently announced by the government is a measure to address concerns about economic slowdown and to inject vitality into the economy.
The reason this supplementary budget is called a 'precision supplementary budget' is because it selectively targets specific areas to maximize economic stimulus effects. The main support targets include small business owners and SMEs, youth employment, vulnerable population support, and regional economic revitalization. Unlike previous large-scale supplementary budgets, this one takes an approach that concentrates funds in areas that need support to enhance efficiency.
What are the expected effects of this budget? The government projects that this supplementary budget could raise the economic growth rate by up to 0.34 percentage points. It is expected to stimulate consumption and investment, help stabilize the lives of vulnerable populations, and contribute to job creation. Particularly if executed promptly, economic recovery effects could be seen from the first half of this year.
However, some are concerned that the 10 trillion won scale, which accounts for only about 0.4% of GDP, may have limited effects. There are also concerns that securing resources for the supplementary budget could increase national debt, which might become a burden on fiscal soundness in the long term.
Ultimately, the success of this supplementary budget depends on two factors. The first is 'targeting accuracy.' Funds must be concentrated in areas with substantial economic stimulus effects. The second is 'prompt execution.' If actual implementation is delayed even after the supplementary budget passes the National Assembly, its effects could be significantly reduced.
Whether this supplementary budget can inject vitality into the stagnant economy or have minimal effects due to its limited scale remains to be seen. What's important is that this supplementary budget should be efficiently executed to not only provide short-term economic stimulus but also contribute to securing mid to long-term growth engines.
2️⃣ Economic Terms
📕 Supplementary Budget
A supplementary budget is an additional budget formulated by the government during the fiscal year in addition to the already confirmed budget.
- It is created to respond to unexpected situations such as economic downturns, natural disasters, or wars.
- It is confirmed through deliberation and resolution by the National Assembly and is used as a means to enhance fiscal policy flexibility.
📕 Fiscal Multiplier
The fiscal multiplier represents the coefficient that shows the impact of a one-unit increase in government spending on GDP (Gross Domestic Product).
- A larger fiscal multiplier means that government spending has a greater economic stimulus effect.
- The fiscal multiplier tends to expand during economic downturns and contract during boom periods.
📕 Precision Supplementary Budget
A precision supplementary budget refers to a targeted supplementary budget that selectively supports specific sectors or groups rather than overall economic stimulus.
- It is a method that concentrates funds in areas that need support to enhance fiscal efficiency.
- Compared to large-scale supplementary budgets, it has less fiscal burden and the advantage of clarifying policy objectives.
📕 Fiscal Soundness
Fiscal soundness refers to the degree to which the government's fiscal condition is sustainable in the long term.
- It is measured by indicators such as national debt ratio and fiscal balance, and excessive fiscal expenditure can deteriorate soundness.
- Maintaining fiscal soundness is an important factor affecting national credit ratings and economic stability.
3️⃣ Principles and Economic Outlook
💡 Content and Selection Background of the 10 Trillion Won Supplementary Budget
Let's examine the specific content of this supplementary budget and the background of why the government chose this scale and direction.
First, this supplementary budget totals 10 trillion won and focuses on four main areas. Specifically, these are: ① Support for small business owners and SMEs (3.5 trillion won), ② Youth job creation and employment support (2.2 trillion won), ③ Support for stabilizing the lives of vulnerable populations (2.3 trillion won), and ④ Regional economic revitalization and SOC investment (2.0 trillion won). Support for small business owners and SMEs includes expanded financial support, reduction of management burdens, and support for digital transformation. The youth employment sector primarily includes job-linked education programs, startup support, and employment incentives. Support for vulnerable populations includes energy vouchers, expanded livelihood support, and strengthened care services. For regional economic revitalization, local consumption promotion projects and renovation of aging SOC facilities are being pursued. These area selections focus on addressing the major problems facing the Korean economy, such as domestic economic stagnation, employment instability, deepening polarization, and regional economic imbalances.
Second, the background for the government's selection of the 10 trillion won scale reflects a consideration of the balance between the need for economic stimulus and fiscal soundness. Despite the recent export recovery, the Korean economy continues to face domestic economic stagnation and dampened consumer sentiment. Economic growth forecasts are also being revised downward, increasing the need for economic stimulus. However, at the same time, the national debt ratio has risen due to expanded fiscal spending until 2024, and excessive fiscal expansion could burden long-term fiscal soundness. The 10 trillion won represents about 0.4% of GDP, which is considered a level that can be expected to stimulate the economy without significantly damaging fiscal soundness. It's also noteworthy that the resources for this supplementary budget were secured through surplus resources from increased tax revenue last year and restructuring of existing budget expenditures, minimizing additional national bond issuance.
Third, the 'precision supplementary budget' approach is a strategic choice for efficient use of limited resources. While past large-scale supplementary budgets stimulated the economy through comprehensive support, this supplementary budget has chosen to focus support on areas with high economic ripple effects and urgency. This strategy involves injecting funds into areas with large fiscal multipliers to achieve maximum effects with limited resources. In particular, small business owners and SMEs have a direct impact on job creation and domestic economic revitalization, youth employment is connected to long-term growth potential, and support for vulnerable populations can simultaneously strengthen the social safety net and stimulate consumption. This targeted approach also has the advantage of clarifying policy objectives and facilitating performance management.
Fourth, the government has also established a special management system for the prompt execution of this supplementary budget. The effects of a supplementary budget are greatly influenced by the actual execution speed. In the past, there have been cases where economic stimulus effects were reduced because actual execution was delayed even after the supplementary budget passed the National Assembly. In response, the government has strengthened advance preparations to enable immediate execution upon passage of the supplementary budget and has established a 'special management system' that monitors the execution status in real-time. It has also strengthened cooperation with local governments and prepared incentives to promote private sector participation. Through this, the government has set a goal to execute over 70% within three months after the supplementary budget's passage, which significantly accelerates the execution speed compared to past supplementary budgets.
This supplementary budget is meaningful in that it takes a 'precision' approach considering the balance between the need for economic stimulus and fiscal soundness. It is characterized by selectively supporting specific areas to achieve maximum effects within a limited scale, and establishing a system for prompt execution. However, the success of this approach depends on the appropriateness of the selected areas and the efficiency of actual execution, which are aspects that need to be closely monitored in the future.
💡 Analysis of the Economic Effects and Limitations of the Supplementary Budget
Let's analyze the expected effects and limitations of this supplementary budget from various perspectives.
First, the effect of the supplementary budget on raising the economic growth rate is generally expected to be around 0.2~0.34 percentage points, although estimates vary. The government has officially projected that this supplementary budget could raise this year's economic growth rate by 0.3 percentage points. This figure considers the multiplier effect of 10 trillion won in fiscal spending inducing private consumption and investment. The Bank of Korea more conservatively estimates a growth rate increase effect of about 0.2 percentage points, while some private research institutions have analyzed that the effect could be up to 0.34 percentage points depending on execution speed and efficiency. These effects could raise this year's Korean economic growth rate forecast from the early 2.0% range to around 2.3%. Particularly if the supplementary budget is executed promptly in the first half of the year, there are expectations that tangible economic recovery effects could be seen from the second quarter.
Second, looking at the potential effects by area, support for small business owners/SMEs and vulnerable populations is analyzed to be most effective for short-term economic stimulus. Small business owners and SMEs have high spending propensities and strong connections with the regional economy, so support for them can lead to increased consumption and production activities in a short time. In particular, financial support and reduction of cost burdens will contribute to resolving funding difficulties for SMEs and expanding their investment capacity. Support for vulnerable populations also targets groups with high marginal propensity to consume, so most support funds are expected to lead to consumption, creating a significant effect in stimulating domestic demand. Youth job creation is expected to contribute to resolving labor market mismatches and expanding growth potential from a mid to long-term perspective rather than having short-term effects. Regional economic revitalization and SOC investment have large multiplier effects, but there may be some time lag before effects are seen due to the time required to promote projects.
Third, limitations of this supplementary budget include the restricted scale, difficulty in solving structural problems, and the political environment. The 10 trillion won scale represents about 0.4% of GDP, which is relatively small compared to past large-scale supplementary budgets (such as 62 trillion won in 2022, 35 trillion won in 2023, etc.). As a result, it may be difficult to expect widespread economic stimulus effects. Additionally, the problems currently facing the Korean economy stem largely from structural factors such as low birth rates and aging population, weakening industrial competitiveness, and deepening polarization, rather than just temporary economic downturns. These structural problems are difficult to solve with short-term fiscal input alone. The political environment is also a variable. The supplementary budget bill must go through deliberation and resolution by the National Assembly, but it may be delayed due to sharp confrontations between the ruling and opposition parties. In fact, there have been past cases where supplementary budget bills drifted in the National Assembly for several months, losing their timeliness.
Fourth, balance with fiscal soundness is also an important consideration. This supplementary budget has tried to minimize additional national debt increases by securing resources through increased tax revenue from last year and expenditure restructuring. However, Korea's national debt ratio has rapidly increased since COVID-19, exceeding 51% of GDP in 2023, which is more than 20 percentage points higher than ten years ago. Considering fiscal soundness, excessive fiscal expansion should be restrained, but if economic downturn becomes prolonged, the need for additional fiscal input may increase. Particularly if economic recovery is delayed in the second half of this year, discussions about a second supplementary budget may be reignited, which could intensify the dilemma between fiscal soundness and economic stimulus.
In summary, this supplementary budget can be seen as an attempt to maximize economic stimulus effects through selective support within a limited scale. While it is expected to raise the economic growth rate by 0.2~0.34 percentage points, it may have limitations in solving structural problems and leading to widespread economic recovery. The actual effects of the supplementary budget will ultimately be determined by the appropriateness of the selected areas, the promptness of execution, and the response of private economic entities.
💡 Tasks and Policy Recommendations for Effective Execution of the Supplementary Budget
Let's look at the policy tasks and recommendations for maximizing the effects of the 10 trillion won supplementary budget.
First, prompt passage through the National Assembly and execution of the supplementary budget is the top priority. The economic stimulus effect of a supplementary budget is largely dependent on the timing of execution. Timeliness is particularly important in a situation where downside risks to the economy are increasing. The government and the National Assembly should cooperate to minimize political differences and expedite the deliberation and resolution of the supplementary budget bill. Even after passage through the National Assembly, the special management system should be strengthened to ensure that the budget is executed promptly without administrative delays. Specifically, it is necessary to establish a cooperation system between central government departments and local governments, strengthen the budget execution monitoring system, and simplify unnecessary administrative procedures. In particular, problems identified from past supplementary budget cases should be analyzed and measures for improvement should be prepared. If over 70% is executed within three months as per the government's target, tangible economic stimulus effects can be expected in the first half of the year.
Second, efficient fund allocation should be centered on areas with high fiscal multipliers. To achieve maximum effects with the limited 10 trillion won budget, areas with large economic ripple effects relative to fiscal input should be prioritized. Generally, support for low-income groups, financial support for SMEs, and public infrastructure investment are known to have high fiscal multipliers. Particularly in the current situation of persistent domestic economic stagnation, it is effective to focus on areas with large consumption stimulation effects. At the same time, balance between short-term economic stimulus and mid to long-term growth engine expansion should also be considered. For example, youth job creation and support for digital transformation of SMEs may have limited effects on raising growth rates immediately, but they can contribute to improving the structural quality of the economy from a long-term perspective. Therefore, a portfolio approach that appropriately combines short-term effects and mid to long-term effects is needed.
Third, maximizing the leverage effect of inducing private sector participation and investment is important. The 10 trillion won supplementary budget scale alone has limitations in reviving overall economic vitality. Therefore, this fiscal input should be designed to play a 'primer' role in inducing private consumption and investment. For example, in the case of SME financial support, methods like expanding private financial institution loans through government guarantees, and regional currencies and consumption coupons for local consumption revitalization have the effect of additionally inducing private consumption. Additionally, by imposing conditions such as matching investments or employment expansion on companies receiving government support, the ripple effects of public resources can be expanded. For this, it is important to strengthen communication and cooperation with the private sector and design market-friendly support methods.
Fourth, regulatory reform and structural improvement efforts should be pursued in parallel with the supplementary budget. Fiscal policy alone cannot solve the structural problems facing the Korean economy. For economic revitalization, structural reforms such as deregulation of corporate activities, enhancing labor market flexibility, and strengthening service industry competitiveness should be pursued in parallel with fiscal input. In particular, regulatory innovation in new industry fields and institutional support for improving SME productivity are important. Furthermore, strategies should be prepared to ensure that fiscal support leads to industrial structure advancement and digital transformation promotion rather than stopping at short-term consumption stimulation. For this, the government should announce a regulatory innovation package along with the 10 trillion won supplementary budget and make efforts to enhance coherence with mid to long-term growth strategies.
4️⃣ In Conclusion
The 10 trillion won 'precision supplementary budget' announced by the government is an important policy measure to address concerns about economic downturn and inject vitality into the economy. This supplementary budget, which focuses on supporting small business owners and SMEs, creating youth jobs, supporting vulnerable populations, and revitalizing regional economies, is meaningful in that it is a selective approach to achieve maximum effects with limited resources.
In terms of economic effects, it is expected to contribute to raising the growth rate by 0.2~0.34 percentage points, but its effects will greatly depend on the content and execution speed of the supplementary budget. In particular, support for small business owners and vulnerable populations is expected to be effective for short-term consumption stimulation due to their high marginal propensity to consume, while youth employment support is expected to contribute to expanding mid to long-term growth potential.
However, the 10 trillion won scale represents about 0.4% of GDP, which has limitations in leading widespread economic stimulus. Additionally, structural problems facing the Korean economy, such as low birth rates and aging population, weakening industrial competitiveness, etc., are difficult to solve with short-term fiscal input alone.
Therefore, to maximize the effects of the supplementary budget, prompt passage through the National Assembly and execution, fund allocation centered on areas with high fiscal multipliers, inducing private sector participation and investment, and parallel pursuit of regulatory reform and structural improvement efforts are necessary. In particular, it is important to design policies so that fiscal support plays a 'primer' role in inducing private consumption and investment.
In conclusion, while the 10 trillion won precision supplementary budget has limitations on its own, if it is executed promptly and efficiently and organically linked with other policy measures, it could inject meaningful vitality into the stagnant economy. What's important is that a comprehensive approach is needed to not only provide short-term economic stimulus but also lead to securing mid to long-term growth engines and improving economic quality.