🚨 Super Budget Era Begins: National Debt Hits 1,300 Trillion Won, Fiscal Health Red Alert

Today Korean Economic News | 2025.07.03

📌 National Assembly Demands 40 Trillion Won Budget Increase…Next Year's Budget Expected to Grow Over 10%

💬 The National Assembly is demanding a 40 trillion won budget increase, which is 9.5 trillion won more than the government's second supplementary budget proposal. This marks the beginning of the "super budget" era. The budget includes popular spending items like free high school education, youth concerts, and free fruit snacks for students. Next year's budget is expected to grow by over 10%. As a result, national debt has already surpassed 1,300 trillion won, and this year's fiscal deficit is expected to exceed 110 trillion won. Experts warn that "worsening fiscal health and interest rate uncertainty could negatively affect investment and consumption."

1️⃣ Easy to Understand

The National Assembly wants to spend much more money than the government suggested, which is putting Korea's national finances in danger. It's like a household that keeps spending more money than it earns.

First, let me explain what a "supplementary budget" means. It's extra money the government decides to spend during the year, in addition to the budget they already planned at the beginning of the year. This year, the government suggested spending an extra 30.5 trillion won, but the National Assembly wants to spend 40 trillion won instead. That's 9.5 trillion won more!

What's surprising is what this money will be spent on. It includes things like free high school education, concerts for young people, and free fruit snacks for schools. While these are nice things, many people wonder if it's right to spend so much money on them when the country already has serious debt problems.

The bigger problem is next year's budget. If they spend this much extra money this year, next year's budget will probably grow by more than 10%. This is especially worrying because there will be local elections next year, and politicians might want to spend even more money to win votes.

Korea's national debt has already passed 1,300 trillion won. This means every Korean citizen owes about 25 million won. This year's deficit is expected to be over 110 trillion won, which means the government will spend 110 trillion won more than it earns.

What happens if this continues? The government will have to borrow more money by issuing government bonds. When there are too many government bonds, interest rates might go up. Higher interest rates make it more expensive for people to borrow money for houses or cars, and for companies to invest in new projects. Foreign investors might also lose confidence in Korea's economy and take their money elsewhere.

In the end, spending money carelessly now might seem good in the short term, but it could be a dangerous choice that hurts all of us in the long run.

2️⃣ Economic Terms

📕 Supplementary Budget

A supplementary budget is extra money that the government decides to spend during the year, in addition to the budget already planned.

• It's used to respond to economic stimulus needs, disasters, or urgent policy requirements.
• It must be approved by the National Assembly and is usually created once or twice a year.
• Supplementary budgets increase government spending and can lead to higher national debt.

📕 Fiscal Balance

Fiscal balance is the difference between government income and government spending.

• If income is more than spending, it's called a fiscal surplus. If spending is more, it's called a fiscal deficit.
• Korea has had fiscal deficits since the COVID-19 pandemic in 2020.
• Continuous fiscal deficits increase national debt and worsen fiscal health.

📕 National Debt

National debt is the total amount of money that the government has borrowed, including both central and local government debt.

• In 2025, Korea's national debt has surpassed 1,300 trillion won.
• The ratio of national debt to GDP is an important indicator. Korea's is about 50%.
• When national debt grows too much, it becomes a burden for future generations.

📕 Fiscal Health

Fiscal health shows how healthy the government's financial condition is.

• It's evaluated by looking at fiscal balance, national debt ratio, and interest burden together.
• Poor fiscal health can lead to lower national credit ratings and higher interest rates.
• For sustainable fiscal management, it's important to balance income and spending.

3️⃣ Analysis and Economic Outlook

✅ Background and Structural Problems of Budget Increases

• Let's analyze the background behind the National Assembly's large budget increase demands and their problems.

  • First, political considerations before elections are the main reason for budget increases. With local elections coming next year, political parties and lawmakers are trying to take care of their local districts, leading to increased budget demands. Projects like expanding free high school education, youth cultural programs, and regional development projects that appeal to voters have been included in large numbers. This 40 trillion won increase request includes many projects that focus on visible results rather than real economic effects. This is a typical example of sacrificing long-term fiscal health for short-term political gains.

  • Second, the checking function in the budget review process is weakening. In the past, budget increases were carefully reviewed, but recently "give-away" budget planning has become common. Competition between different committees to increase their department budgets has broken down overall fiscal discipline. Budget allocations are increasingly made without careful review of individual projects' necessity or effectiveness. This is very worrying from the perspective of taxpaying citizens.

  • Third, changed perceptions about the government's expanded fiscal role after COVID-19 have had an impact. The experience of large-scale fiscal spending helping economic recovery during the pandemic has reduced resistance to expanding fiscal spending. However, excessive fiscal spending continues even though COVID-19 has calmed down, which is problematic. Large-scale fiscal spending that was an emergency response measure has become routine, making fiscal discipline loose.

• Budget increases for political purposes might be popular in the short term, but they are a serious problem that threatens the sustainability of national finances in the long term.

✅ Implications of National Debt Surpassing 1,300 Trillion Won

• Let's look at the economic meaning and ripple effects of national debt surpassing 1,300 trillion won.

  • First, we need to understand the real meaning of the number 1,300 trillion won. This is like every Korean citizen owing about 25 million won, or a family of four carrying 100 million won in debt. As a percentage of GDP, it's about 50%, which is still lower than the OECD average (70%), but the growth rate is very fast. National debt growing by 400 trillion won in just 5 years from 900 trillion won in 2020 is unprecedented speed. If this trend continues, it could exceed 2,000 trillion won by 2030, causing serious concern.

  • Second, increasing national debt creates the problem of passing burdens to future generations. The government bonds issued now are money that must be repaid in the future. With declining birth rates and an aging population reducing the working-age population, fewer young people will have to carry more debt. The tax burden that current people in their 20s and 30s will have to bear when they become middle-aged could increase significantly. This creates intergenerational equity problems and could reduce young people's motivation for economic activity.

  • Third, high national debt limits the ability to respond during economic crises. If there's already a lot of debt during normal times, it becomes difficult to increase fiscal spending during economic crises or natural disasters. If another pandemic like COVID-19 or a financial crisis occurs, the ability to provide sufficient fiscal response becomes limited. Also, if this leads to a downgrade in national credit rating, rising government bond interest rates and increased funding costs for the private sector could negatively affect the entire economy.

• National debt surpassing 1,300 trillion won should be seen not just as a number, but as a warning signal about the sustainability of our economy.

✅ Long-term Effects of Worsening Fiscal Health

• Let's analyze the long-term effects that worsening fiscal health will have on the overall economy and response measures.

  • First, there are concerns about rising interest rate pressure and weakening private investment. When the government issues many government bonds, oversupply in the bond market can cause government bond interest rates to rise. Since government bond rates serve as the basis for all interest rates, when they rise, corporate loan rates and household loan rates also rise together. High interest rates reduce companies' willingness to invest and also weaken household consumption. Considering Korea's household structure with many real estate loans, the impact of rising interest rates could be even greater.

  • Second, tax burden increases and pressure to cut welfare will intensify. If fiscal deficits continue, the government will eventually have to raise taxes or reduce spending. But realistically, it's difficult to reduce existing spending, so tax increases are more likely. Various taxes like corporate tax, income tax, and value-added tax could be targets for increases, which would burden both businesses and households. Also, pressure to cut welfare budgets could increase, potentially intensifying social conflicts.

  • Third, there are risks of national credit rating downgrades and worsening external credibility. Credit rating agencies like Moody's and S&P continuously monitor each country's fiscal health. If fiscal deficits and national debt continue to grow, Korea's national credit rating could be downgraded. This could lead to reduced foreign investment and capital outflows, causing exchange rate instability and stock market declines. Since Korea has an economy with high external dependence, the ripple effects of declining external credibility could be significant.

• Worsening fiscal health is a factor that threatens the stability of the overall economy, so systematic fiscal management is needed starting now.

4️⃣ In Conclusion

The National Assembly's demand for a 40 trillion won supplementary budget increase and the prospect of next year's budget growing by 10% show that Korean finances face a serious crisis. National debt surpassing 1,300 trillion won and an expected fiscal deficit of 110 trillion won have reached levels that can no longer be ignored.

What's most concerning is that these budget increases are being pushed for political purposes. Spending huge amounts on projects that aren't immediately urgent, like free high school education, youth concerts, and fruit snack support, is hard for taxpaying citizens to accept. This trend is likely to intensify even more with local elections coming next year.

The ripple effects of worsening fiscal health are more serious than we think. In the short term, it could lead to rising interest rates and weakening private investment. In the long term, it will directly affect citizens' lives through increased tax burdens and pressure to cut welfare. The structural problem is especially serious in a situation with declining birth rates and an aging population, where fewer young people will have to bear more debt.

We now need a fundamental approach. Strict feasibility reviews in the budget planning process, bold elimination of unnecessary projects, and tax system reforms to expand revenue sources are urgent. The political world must also show a responsible attitude for long-term national development rather than short-term popularity.

Most importantly, citizens' interest and oversight are crucial. We must constantly question how our taxes are being used and whether that spending is really necessary. We need mature civic awareness that recognizes the importance of fiscal health without being deceived by politicians' populist promises.

The beginning of the super budget era is a crisis, but it's also an opportunity. If we build a sustainable economic foundation through systematic fiscal management starting now, we can leave a better economic environment for future generations.