[Editorial] A 800 Trillion Won Super Budget Should Also Tighten the Reins on Spending Restructuring

The South Korean government and the Democratic Party of Korea agreed on the broad framework of next year’s budget on the 25th. They decided to use higher tax revenue from the semiconductor boom to make concentrated investments in Artificial Intelligence (AI), the three major mega-projects, and future industries, while also focusing support on young people, regional areas, and measures to address polarization. Total spending next year is expected to reach 800 trillion won plus, more than 10% higher than this year’s original budget. It would be the first double-digit increase since 2009, during the global financial crisis.
In a period of fierce competition among countries over advanced industries, it is only natural to deploy fiscal resources boldly where they are needed. But a larger tax take should not mean loosening the reins on spending. Next year’s national tax revenue is even being discussed as possibly exceeding 600 trillion won, helped by the semiconductor boom. At times like this, what the government should do is cut unnecessary fixed spending and reduce national debt to reshape the fiscal structure. Once subsidies or various cash-based support programs are created, they often become permanent spending items that are difficult to scale back even when the economy weakens.
The South Korean government says it is pushing for more than 50 trillion won in spending restructuring next year, but about 20 trillion won of that reflects the effect of curbing spending growth through a reform of the education grant system. It should clearly explain which projects in other areas will be cut and by how much. It should not present modest reductions in existing programs or the restructuring of expired temporary programs as major achievements.
It is even more problematic to fill the space created by reduced spending with new projects that are difficult to justify. Spending restructuring should not stop at eliminating a few programs. It should mean cutting unnecessary recurring expenditures in line with changed realities and reallocating resources to truly essential projects.
The newly planned Future Response Fund also needs close scrutiny. According to the government, the fund will mainly invest in growth engines such as youth, AI, regional development, and education. Much of that overlaps with the priority investment areas in the 800 trillion won budget announced by the ruling party and the government on the same day. The government said the fund could also serve as a stabilizing tool to reinforce fiscal capacity when tax revenue falls short, and could be used to repay government bonds if necessary. A fund worth more than 100 trillion won, with such broad purposes and uses, should not be allowed to operate like another super reserve fund. It must also be checked whether similar projects are being placed into the new fund after the government claims to have restructured more than 50 trillion won in spending.
Another concern is the burden that excessive money supply could place on the economy. Consumer prices rose 2.8% last month from a year earlier, and core inflation is also in the mid-2% range. Food prices, from cold noodles and samgyetang to kimbap and ingredients for home-cooked meals, are also fluctuating sharply. If the 800 trillion won expansionary budget flows into cash-based spending rather than productivity-enhancing investment, it could run counter to the authorities’ efforts to stabilize prices.
It is also important to show a commitment to reducing the rapidly growing national debt. Rather than spending all excess tax revenue on new projects, it is normal fiscal management to use part of it to reduce the deficit and pay down debt. The United States, which is now struggling with the consequences of public debt, offers a lesson. This year, U.S. net interest spending alone is expected to exceed $1 trillion. Massive debt and interest burdens are squeezing public finances, while large-scale issuance of government bonds pushes market interest rates higher and deepens concerns over interest costs again. South Korea should face the reality that national debt is narrowing the policy options available to the United States. When the economy is strong, debt should be reduced so that the future can be secured. Even as the government boldly allocates budgets to advanced industries during a tax boom, it must prevent unnecessary spending from expanding without limit under that pretext.