🚨 30 Trillion Won Super Budget Plan: Economic Stimulus vs. Fiscal Health Dilemma

Today Korean Economic News | 2025.06.08

📌 30 Trillion Won Super Budget - Walking a Tightrope Between Economic Recovery and Fiscal Health

💬 The Lee Jae-myung government is pushing for a 30 trillion won supplementary budget to respond to economic recession, tax revenue shortfalls, and trade risks. However, issuing deficit bonds to fund this plan is raising concerns about increased national debt and potential credit rating downgrades, requiring careful design to minimize side effects. Experts point out that a balanced approach is needed between economic stimulus effects and worsening fiscal health. While the necessity of the supplementary budget is acknowledged amid growing concerns about Korea's export-dependent economy due to simultaneous U.S. economic slowdown and China's growth deceleration, voices are rising for finding sustainable fiscal management plans as well.

1️⃣ Easy Understanding

The government has announced plans to spend an enormous 30 trillion won in additional money. This represents about 5% of our country's annual budget - a massive measure to revive the economy.

The term "supplementary budget" might sound complicated, but it simply means spending additional money beyond what was originally planned. It's like a household that usually lives on monthly salary but suddenly needs to break savings or take out loans for large unexpected expenses.

Why does the government need to spend such a large amount? First, the economy is in serious trouble. As both the U.S. and Chinese economies face difficulties, Korea's exports are declining and domestic consumption is stagnant. Second, tax revenue is coming in lower than expected. When the economy is bad, companies earn less profit, so corporate taxes decrease, and personal income also falls, reducing income taxes. Third, trade environments are worsening due to U.S. tariff policies, which could cause additional damage to our economy.

How will the 30 trillion won be spent? It's expected to focus mainly on job creation, support for small businesses, stabilizing people's livelihoods, and infrastructure investment. For example, increasing public jobs, providing support funds to struggling self-employed individuals and small business owners, and building social infrastructure like roads and bridges.

But there's a problem. Where will this large amount of money come from? The government plans to raise funds by issuing government bonds, which means the national debt will increase. Korea's current national debt already exceeds 1,100 trillion won, and adding 30 trillion won would bring it to 1,130 trillion won.

What problems arise when debt increases like this? First, we have to pay more interest every year. Second, credit rating agencies might lower Korea's credit rating. Third, we might have to raise taxes later to pay back the debt.

Ultimately, the key is finding balance between immediate economic recovery and future fiscal health. It's like a household wondering whether to borrow money for immediate needs or tighten the belt and endure tough times.

2️⃣ Economic Terms

📕 Supplementary Budget

A supplementary budget is additional spending planned during the year when the original budget needs to be changed or when extra expenditure is needed.

• Used to respond to economic recession, natural disasters, or sudden economic changes.
• The 30 trillion won scale represents about 5% of the annual budget, which is quite large.
• Requires National Assembly approval and usually goes through 2-3 months of review process.

📕 Deficit Bonds

Deficit bonds are government bonds issued to raise funds when government spending exceeds revenue.

• This is the government borrowing money, requiring interest payments and principal repayment at maturity.
• Issuing deficit bonds directly leads to increased national debt, burdening fiscal health.
• Korea's current national debt is about 53% of GDP, lower than the OECD average.

📕 Tax Revenue Shortfall

Tax revenue shortfall occurs when the government collects less tax income than expected.

• Economic recession reduces corporate profits and personal income, decreasing corporate and income tax revenues.
• Reduced real estate transactions lead to decreased capital gains and acquisition tax revenues.
• Tax revenue shortfalls become major constraints on government fiscal operations.

📕 Fiscal Health

Fiscal health indicates whether the government's financial condition is at a sustainable level.

• Evaluated through national debt ratios, fiscal balance, and interest costs.
• Poor fiscal health can lead to credit rating downgrades and interest rate increases.
• Balance between short-term stimulus and long-term sustainability is important.

3️⃣ Principles and Economic Outlook

✅ Necessity and Economic Background of 30 Trillion Won Supplementary Budget

• Let's analyze the reality and background of the Korean economy that necessitated this large-scale supplementary budget.

  • First, global economic slowdown is directly impacting the Korean economy. The U.S. first-quarter negative growth and China's structural slowdown are delivering major shocks to Korea's export-dependent economy. Cumulative exports for January-April 2025 decreased 3.2% compared to the same period last year, with China exports plummeting 8.5%. Even semiconductors, a major export item, are struggling due to memory chip price declines despite the AI boom. The domestic economy is also delayed in recovery due to consumption decline caused by high household debt and high interest rates. Retail sales have shown four consecutive months of decline, and bankruptcy rates among self-employed individuals and small business owners are increasing. In this situation, it's difficult to expect private sector recovery on its own, making active government fiscal intervention inevitable.

  • Second, tax revenue shortfalls and reduced fiscal capacity are increasing the scale of the supplementary budget. Tax revenue for January-April 2025 is 15 trillion won short compared to the same period last year. Corporate taxes decreased by 12 trillion won due to poor corporate performance, and capital gains taxes fell by 3 trillion won due to reduced real estate transactions. This shows that economic vitality itself is declining, beyond just reduced income. The government originally aimed for a 3 trillion won fiscal surplus this year, but now faces an inevitable deficit of over 10 trillion won. In this situation, the 30 trillion won supplementary budget would increase the fiscal deficit to 40 trillion won, making it a very burdensome decision for the government. However, the judgment is that preemptive response is necessary as prolonged economic recession could worsen tax revenue decline.

  • Third, trade risks and geopolitical instability are amplifying economic uncertainty. Strengthened U.S. protectionism is increasing tariff burdens on Korean products, and trade disputes with China are likely to reignite. Particularly, supply chain restructuring in high-tech fields like semiconductors and secondary batteries presents new challenges for Korean companies. North Korea's nuclear threats and the prolonged Russia-Ukraine war are also acting as factors for global supply chain instability and raw material price increases. These external risks are dampening corporate investment sentiment and reducing consumer confidence, making economic recovery even more difficult. Therefore, the government needs to send strong policy signals to calm anxiety and restore confidence among economic actors.

• The 30 trillion won supplementary budget has the character of a comprehensive prescription for the complex crisis facing the Korean economy. Strategic investment is needed that goes beyond simple economic stimulus to include structural competitiveness enhancement and securing future growth drivers.

✅ Supplementary Budget Funding and National Debt Concerns

• Let's examine the funding plans for the 30 trillion won supplementary budget and resulting fiscal health concerns.

  • First, funding through deficit bond issuance is inevitable. The government plans to raise about 25 trillion won of the 30 trillion through deficit bond issuance. The remaining 5 trillion won will be secured through budget reallocation and increased non-tax revenue. The problem is that issuing 25 trillion won in bonds will push national debt up to 1,130 trillion won. This represents 53.5% of GDP, rising 1.4 percentage points from 52.1% at the end of last year. While lower than the OECD average of 71%, the rapid increase rate is causing concern. Particularly, annual government bond issuance exceeding 200 trillion won for the first time is increasing burden on the bond market. Increased bond issuance can act as upward pressure on interest rates, potentially negatively affecting private investment and consumption.

  • Second, increased interest costs will be a major burden on future fiscal operations. With current 3-year treasury bond rates at 3.2%, the annual interest cost from 25 trillion won in additional debt amounts to about 800 billion won. Interest costs on existing national debt of 1,100 trillion won already exceed 50 trillion won annually, adding to the burden from the supplementary budget. The bigger problem is that interest burdens could increase exponentially when future interest rates rise. If rates rise by 1 percentage point, annual interest costs could increase by over 11 trillion won. This means less money available in the government budget for education or welfare. Therefore, there's a risk of falling into a fiscal vicious cycle if the economy doesn't recover and tax revenue doesn't increase within the period when supplementary budget effects appear.

  • Third, concerns about credit rating downgrades and external credibility issues are being raised. Just as Moody's downgraded the U.S. credit rating for the first time in 108 years, Korea could also face credit rating downgrade risks due to rapid national debt increases. Korea's current credit rating is Aa2 according to Moody's, ranking 12th globally, but evaluations could change if fiscal deterioration accelerates. Credit rating downgrades lead to rising government bond rates, increasing government interest burdens, and corporate funding costs also rise together. Additionally, foreign investors' confidence in the Korean economy could decline, negatively affecting stock and foreign exchange markets. Therefore, it's important to increase efficiency and transparency in supplementary budget execution while simultaneously presenting medium-to-long-term fiscal health recovery plans.

• The funding dilemma is about finding balance between current economic crisis and future fiscal crisis. Sophisticated fiscal design is needed that maximizes short-term stimulus effects while securing long-term sustainability.

✅ Supplementary Budget Effects and Policy Tasks

• Let's analyze the expected effects of the 30 trillion won supplementary budget and policy tasks for success.

  • First, the multiplier effect of the supplementary budget on economic growth is likely to be limited. Generally, the fiscal multiplier (GDP increase effect per 1 won of fiscal spending) is known to be around 1.0-1.5, but in current high-debt, high-interest rate situations, it could fall to 0.7-1.0 levels. Even if the entire 30 trillion won supplementary budget is executed, the GDP increase effect would be around 21-30 trillion won, with growth rate increases expected to be only 1.0-1.4 percentage points. The bigger problem is that if a significant portion of the supplementary budget focuses on one-time spending or consumption support, it's difficult to lead to sustainable growth momentum. For example, disaster relief funds or small business support funds increase consumption in the short term but don't connect to productivity improvements or investment increases. Therefore, it's important to focus the supplementary budget composition on infrastructure investment and technology development that strengthen medium-to-long-term growth foundations.

  • Second, selective focus is needed for structural competitiveness enhancement. Despite the large scale of 30 trillion won, effects could be dispersed if spread evenly across all sectors. The government should focus investment on future growth driver fields like digital transformation, green transformation, and advanced manufacturing development. Priority should be given to R&D investment and human resource development that can secure global competitiveness in new industries like AI, bio, secondary batteries, and robotics. Support for innovation capacity enhancement of SMEs and startups should also be expanded. Beyond simply providing funds, institutional improvements like regulatory reform, permit simplification, and startup ecosystem creation must be pursued together to expect practical effects. Fiscal input and institutional reform must be packaged to maximize multiplier effects.

  • Third, presenting a medium-to-long-term roadmap for fiscal health recovery is urgent. Clear plans for when and how to reduce the national debt increased by the 30 trillion won supplementary budget are needed to maintain market confidence. The government aims to convert to fiscal surplus by 2028, but specific implementation plans are lacking. Revenue expansion measures being considered include VAT rate increases, corporate tax rate adjustments, and comprehensive real estate tax strengthening, but cautious approaches are needed as they could burden economic recovery. Expenditure restructuring is also inevitable, with clearing inefficient budget projects and ensuring welfare system sustainability being important tasks. Most importantly, the most desirable scenario is achieving natural tax revenue increases through growth rate recovery via the supplementary budget.

• The success of the supplementary budget depends not simply on spending a lot of money, but on how efficiently and strategically the investment is made. Creating a virtuous cycle structure between fiscal health and economic growth is the key task.

4️⃣ In Conclusion

The 30 trillion won supplementary budget push is an inevitable choice reflecting the complex crisis situation facing the Korean economy. With global economic slowdown, tax revenue shortfalls, and trade risks overlapping, active government fiscal intervention is needed when private sector recovery alone is difficult.

However, side effects from large-scale fiscal input must also be carefully considered. As national debt increases to 1,130 trillion won through 25 trillion won in deficit bond issuance, annual interest cost burdens increase and credit rating downgrade concerns grow. This also means transferring burdens to future generations.

Therefore, selective focus is needed to maximize supplementary budget effects. Rather than one-time support, concentrated investment is needed in digital transformation, green transformation, and advanced manufacturing that can become future growth drivers. Also, beyond simply spending money, regulatory reform and institutional improvements must be pursued as packages to expect practical effects.

Most importantly, presenting a clear roadmap for fiscal health recovery is crucial. A virtuous cycle structure must be created where tax revenue increases through economic recovery via the supplementary budget, gradually improving fiscal balance. This requires both economic growth rate recovery and expenditure restructuring.

Ultimately, the 30 trillion won supplementary budget should serve as a catalyst for crisis recovery. The most ideal scenario is where government investment induces private investment, leading to sustainable growth that naturally restores fiscal health. This requires sophisticated policy design, efficient execution, and public trust and support.