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South Korea Returning To Surplus

by Mary Swire,, Hong Kong

30 September 2010

Despite a planned rise in public expenditure, the government’s fiscal budget is likely to return to surplus in 2011, largely due to a revival in tax revenues as South Korea’s economy grows at a faster rate.

With the budget due to be presented to parliament by the beginning of next month, and parliamentary approval to be obtained by the end of this year, the government has preliminarily agreed a 5.7% rise in its spending in 2011 to almost KRW310 trillion (USD270bn). On the other hand, tax revenues are expected to increase by 8.2% to nearly KRW315 trillion.

The government is therefore forecasting a fiscal surplus of some KRW5 trillion next year, after an estimated deficit of KRW2 trillion in 2010. This compares extremely favourably with the fiscal deficit of more than KRW17 trillion experienced in 2009 when the government boosted expenditure to counteract the global economic crisis.

The government’s ability to continue spending on health and welfare programmes for those on low- and middle-incomes, and still retain fiscal stability, is to be bolstered by the additional tax revenues arising from a forecast average growth in South Korea’s gross domestic product (GDP) of 5% in 2011-2014.

However, that ability will be undermined if other institutions’ forecasts of slower growth in that period, at 3.5%-4.5%, because of slower export volumes due to lower global growth rates, are instead found to be correct.

On the government’s figures, the level of the country’s public debt, as a percentage of GDP, will be reduced in 2011 by around 1%, to a very acceptable 35.2%. If economic growth rates are maintained according to the government’s forecasts, that level is expected to fall further, to 31.8%, by 2014.

TAGS: tax | economics | gross domestic product (GDP) | budget | Korea, South

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