By Lee Hyo-sik
Staff Reporter

The next administration, which will take over state affairs from the current Roh Moo-hyun government in February 2007, will likely be left with a huge amount of government debt as it is expected to surge by 44.8 percent from 204.5 trillion won this year to 296 trillion in 2008, equal to 27.9 percent of the projected gross domestic product (GDP) for 2008.

The projection is the result of the Roh administration’s plans to run a budget deficit over the next three to four years, mostly to increase spending on defense and welfare.

The government plans to spend a total of 1,109 trillion won ($968.5 billion) in its fiscal budget for the next five years, of which 166 trillion won will be used to finance 11 key state projects such as social security and national defense, while the nation’s taxpayers will be obliged to pay 26.3 percent of their income through various taxes and other payments in 2008, up from 25 percent this year, according to the five-year fiscal budget plan unveiled yesterday by the Ministry of Planning and Budget.

Minister of Planning and Budget Kim Byung-il said that the budget plan will be forwarded to the National Assembly for approval to enable the government to manage its fiscal budget more efficiently as it creates greater freedom to inject necessary state funds into the economy as well as allowing a better evaluation of budget spending.

The outstanding national debt is forecast to jump to 296 trillion won in 2008 after a series of increases in the preceding years, with 204.5 trillion in 2004 and 271.2 trillion in 2006, due mainly to the issuance of state bonds amounting to 49 trillion won from last year through 2006 to finance the public fund, which was injected into the nation’s financial institutions and corporations amid the 1997-1998 Asian financial crisis.

In the meantime, the government plans to increase spending by 6.3 percent each year with the expectation that revenues will also grow by 8.3 percent annually during the same period, according to the long-term budget plan.

Thus, the total government budget from this year through 2008 will amount to 1,109 trillion won as the annual government budget, combining general fiscal budget and state funds, will jump to 251 trillion won, after 234 trillion in 2007, 220 trillion in 2006, 208 trillion in 2005 and 196 trillion this year, according to the Planning and Budget Ministry.

The government plans to increase defense expenditures to 26.4 trillion won in 2008 from 18.1 trillion this year in order to strengthen the nation’s defense capability to deter the possible militaristic aggression from North Korea as the United States has started reducing its presence on the Korean peninsula.

The budget plan will expand education spending to 33.3 trillion won in 2008 from 24.6 trillion this year mainly to strengthen the public education system as well as provide educational opportunities for needy students who desire to pursue higher learning.

The government also plans to allocate 9.9 trillion won in 2008 to promote and foster research and development (R&D) projects on various fields of science and technology, while the spending on social welfare projects will amount to 51.2 trillion in 2008 from 32.4 trillion this year.

Meanwhile, the ratio of tax burden to the GDP will increase to 26.3 percent in 2008 from 25 percent this year, due mainly to hikes in national pension payments and health insurance premiums.

After annual budget deficits drop to 0.3 percent of GDP in 2007 from 0.6 percent in 2006 and 0.9 percent this year, the government budget is expected to balance out in 2008 under the assumption that the economy will grow 5 percent on average annually from 2004 through 2008, Minister Kim said.

However, many foreign and local economists forecast that the Korean economy is not likely to grow by 5 percent annually in the near future since its potential growth rate has fallen to the 4 percent range, indicating that Korea may be entering a low growth era.

Korea must come up with a new engine for economic growth in the near future as it is expected to enter the period of low economic growth without improvements in the current industries, according to the Samsung Economic Research Institute (SERI).

Accordingly, if the Korean economy expands by less than 5 percent a year for the next five years under the long-term budget plan, the government would have to issue state bonds to finance the budget shortfalls, the SERI economist said.

leehs@koreatimes.co.kr