Korea unveils W30.5tr stimulus to revive growth, ease household strain

Korea Herald

6 hours ago

W10.3tr revenue cut marks first revision in five years as fiscal deficit widens
Just two weeks into office, President Lee Jae Myung's administration has unveiled a proposal for a 30.5 trillion won ($22.2 billion) supplementary budget aimed at jump-starting the sluggish economy. The package includes a 10.3 trillion won revenue revision — the first in five years.
'The Korean economy now stands at an inflection point,' Second Vice Finance Minister Lim Ki-keun said Wednesday during a briefing in Sejong. 'To set growth on an upward trajectory, timely and bold fiscal intervention is more critical than ever. More spending cannot by itself solve everything, but this will be a vital first step.'
The measure marks the second spending package this year, following a 13.8 trillion won plan approved in May under the previous administration, which won rare bipartisan support during a politically volatile, post-impeachment transition.
With Cabinet approval secured on Thursday, the government said it plans to submit the latest proposal to the National Assembly by Monday.
Lim said the latest plan was guided by two priorities: providing tangible support for the real economy and people's livelihoods and ensuring its swift implementation within the year.
Of the 20.2 trillion won in new spending, 15.2 trillion won will go toward boosting economic activity, while 5 trillion won is earmarked for stabilizing livelihoods.
A key pillar of the stimulus is a 10.3 trillion won cash relief program distributed via so-called 'spending coupons,' with payments ranging from 150,000 won to 500,000 won based on income levels. All Koreans will receive at least 150,000 won in the first phase, with larger amounts for lower-income households. In the second phase, the top 10 percent of earners will be excluded, while the remaining 90 percent will receive an additional 100,000 won.
The government also allocated 2.7 trillion won to the construction sector, which has posted four consecutive quarters of contraction and remains a significant drag on domestic demand.
To foster long-term growth, 1.2 trillion won will be invested in startups and emerging industries, including artificial intelligence and renewable energy.
The 5 trillion won earmarked for livelihood support mainly targets struggling small business owners and the self-employed, as recent data show record-high default rates and involuntary closures. Of that, 1.4 trillion won will go toward easing the debt burden of chronically distressed borrowers, while 1.6 trillion won will be used to strengthen the employment safety net, through job-seeking benefits and aid for delayed wage payments.
The government is revising down its revenue projection by 10.3 trillion won, marking the first revenue correction since July 2020 during the COVID-19 pandemic.
As of end-April, the integrated fiscal balance, indicating the government's underlying fiscal health, posted a deficit of 46.1 trillion won — the third-largest April shortfall on record after 2024 and 2020. That figure is set to grow, factoring in more than 30 trillion won in combined extra budget spending this year.
Fiscal conditions are set to worsen with expanded outlays. Full-year revenue is now projected at 642.4 trillion won, down from an initial estimate of 651.6 trillion won, while spending has been revised up to 702 trillion won from 673.3 trillion won.
As a result, the year-end integrated fiscal deficit is forecast to reach 110.4 trillion won, widening from 91.6 trillion won last year. As a share of gross domestic product, the deficit rate is projected to rise to 4.2 percent, up from an earlier forecast of 3.3 percent.
The national debt, which stood at roughly 1,200 trillion won as of end-April, is expected to exceed 1,300 trillion won by year's end, pushing the debt-to-GDP ratio to 49 percent.
To finance the shortfall, the government plans to issue 19.8 trillion won in treasury bonds, with the remainder covered through about 10 trillion won in spending restructuring and available fund reserves.
The ministry downplayed concerns about bond market pressure, saying the extra budget had already been priced in and yields remain stable. 'Demand in the treasury bond market remains solid,' Lim said.
Despite concerns over fiscal health, the finance ministry said Korea's debt remains manageable by global standards.
Lim underscored the administration's emphasis on 'sustainability,' calling for strategic spending paired with a long-term path to fiscal stability.
'Given current economic and fiscal conditions, rigidly adhering to the 3 percent deficit cap could harm both the economy and public finances,' Lim said, adding, 'While we remain committed to fiscal sustainability, strictly meeting the rule is unrealistic at this stage."
The government expects the extra budget to boost economic growth by 0.1 to 0.2 percentage points, lifting it into the 1 percent range. The Bank of Korea projects 0.8 percent growth this year, while the International Monetary Fund forecasts a 1 percent expansion.