SEOUL (REUTERS) – South Korea unveiled a 33 trillion won (S$39.2 billion) supplementary budget on Thursday (July 1), the largest on record for extra spending outside its annual budget, to offer pandemic relief to households, aid small businesses and create jobs.
The government expects to add 164,000 new jobs using the supplementary stimulus package, which will be financed by the extra tax revenues the government expects to collect this year, the finance ministry said.
The extra budget, which still needs to be approved by parliament, comes at a time when the ruling Democratic Party is struggling to recover public support ahead of 2022 presidential elections and as the Bank of Korea prepares to tighten monetary policy.
“Despite clear signs of economic recovery, impacts on small businesses and those vulnerable to the pandemic are continuing,” Finance Minister Hong Nam-ki told an embargoed news conference on Tuesday.
“Timely measures are necessary and therefore it is, once again, time for fiscal policy to play a bigger role.”
Some 15.7 trillion won of the extra budget will be used to support small businesses and to provide cash handouts to households, while 2.6 trillion is earmarked to help struggling job seekers, the ministry said.
The government will also use 4.4 trillion won of the extra budget to purchase Covid-19 vaccines, boost immunisation and increase coronavirus testing.
South Korea provided 310 trillion won worth of fiscal support in 2020, including four extra budgets, to help Asia’s fourth-largest economy withstand the fallout of the coronavirus pandemic. The government approved this year’s first supplementary budget worth 14.9 trillion won in March.
The government will use excess tax revenues of 31.5 trillion won expected this year to finance spending, the finance ministry said.
With the latest supplementary budget, the finance ministry said total government spending would increase to a record 604.7 trillion won this year, up 18.0 per cent from last year, while expected tax revenue is seen growing 6.8 per cent.
The debt-to-GDP ratio, however, is expected to ease slightly to 47.2 per cent this year from 47.3 per cent in 2020, and below the 48.2 per cent projected in March.
South Korea sharply upgraded its 2021 growth forecast to an 11-year high of 4.2 per cent this week as it pledged to continue to provide fiscal support to an economy hard-hit by Covid-19. Gross domestic product shrank 0.9 per cent in 2020, its biggest full-year contraction since 1998, as Covid-related lockdown measures hurt economic activity.
The ministry plans to submit the budget plan to parliament on July 2.