This report analyzes the 2013 Budget Proposal and the 2012–2016 National Fiscal Management Plan and presents the economic and fiscal outlook conducted by the National Assembly Budget Office (NABO).
1) Analysis of the 2013 Budget Proposal
NABO forecasts that the managed fiscal balance in 2013 is about 18.5 trillion won of deficit, 13.7 trillion won higher than the government’s forecasted 4.8 trillion won of deficit. The difference between the forecasts is mainly attributed to revenue, which consists of both tax revenue and non-tax revenue. The gap in tax revenue caused by the different economic growth forecasts between the administration and NABO is 2.3 trillion won. The difference in non-tax revenue, 8.1 trillion won, is attributed to sales potential of the government’s holdings of public enterprises such as the Industrial Bank of Korea.
Considering counter-cyclicality of national finance, fiscal expenditure in 2013 should expand. The rate of increase in total expenditure in 2013 is 5.3 %, which is the lowest for the last five years, except 2010. The rate of increase in the consolidated fiscal balance and net government lending is 5.1%. As a result of the analysis of fiscal stance through Fiscal Impulse Indicator (FI), the 2013 budget proposal shows a tightened stance of -0.81, which is less contracted than that of 2012 (-1.27), and is similar to that of 2011 (-0.74). The difference between real GDP growth rate and potential GDP growth rate, is projected at -2.8%. It is lower than that of 2010, and it is the lowest during the projection period, from 2012 to 2016.
Besides that, the problems with the 2013 budget proposal with respect to fiscal management and resource allocation are as follows. With respect to fiscal management, as government lending of 3.2 trillion won is transferred to the private sector, the amount of lending will expand. However, this change can cause complication of the evaluation for lending by banks, so it may be difficult for enterprises that have to be supported by emergency management safety funds to borrow money from banks. With respect to resource allocation, although the budget of the economic sector, such as social overhead capital (SOC), increases, the rate of increase in the research and development (R&D) sector in 2013 decreases to 5.3%, which is lower than that of 2012 (7.3%). Under this tightened stance, it may not be possible for national finance to cope with economic slump.
2) Analysis of the 2012–2016 National Fiscal Management Plan
NABO forecasts that the annual growth rates of total revenue and total spending from 2012 to 2016 are 5.0% and 4.9% respectively, and the managed fiscal balance is 20 trillion won in deficit every year. On the other hand, the administration forecasts that these are 6.5% and 4.9% respectively. The administration forecasts that managed fiscal balance from 2014 will be in surplus and the fiscal surplus will grow. The administration intends to operate government finance in the most expanded stance in 2015. Contrary to the administration’s positive forecast, NABO forecasts that fiscal deficits from 2014 to 2016 will be 20.7 trillion won, 19.0 trillion won, and 19.3 trillion won respectively. Therefore, it is necessary for the administration to strengthen a tightened stance in 2014.
In addition, this report presents problems with the National Fiscal Management Plan and according solutions. First, the “2012-2016 National Fiscal Management Plan” is a rolling framework in which the multi-year fiscal plan is changed every year regardless of the previous plan, so it lacks effectiveness. Second, because the budget proposal and the midterm fiscal plan are submitted to the parliament in the same period, the midterm fiscal plan is not sufficiently reflected in the budget proposal. To avoid this problem, the submission period of the midterm fiscal plan should be brought forward. Lastly, a midterm fiscal plan submitted in the last year of a presidency is useless at the time of new presidency. Therefore, the submission frequency of the National Fiscal Management Plan may be adjusted from once a year to two times for five years such as the beginning and the third year of the tenure.
Economic Analysis Office
1) Analysis of the 2013 Budget Proposal
NABO forecasts that the managed fiscal balance in 2013 is about 18.5 trillion won of deficit, 13.7 trillion won higher than the government’s forecasted 4.8 trillion won of deficit. The difference between the forecasts is mainly attributed to revenue, which consists of both tax revenue and non-tax revenue. The gap in tax revenue caused by the different economic growth forecasts between the administration and NABO is 2.3 trillion won. The difference in non-tax revenue, 8.1 trillion won, is attributed to sales potential of the government’s holdings of public enterprises such as the Industrial Bank of Korea.
Considering counter-cyclicality of national finance, fiscal expenditure in 2013 should expand. The rate of increase in total expenditure in 2013 is 5.3 %, which is the lowest for the last five years, except 2010. The rate of increase in the consolidated fiscal balance and net government lending is 5.1%. As a result of the analysis of fiscal stance through Fiscal Impulse Indicator (FI), the 2013 budget proposal shows a tightened stance of -0.81, which is less contracted than that of 2012 (-1.27), and is similar to that of 2011 (-0.74). The difference between real GDP growth rate and potential GDP growth rate, is projected at -2.8%. It is lower than that of 2010, and it is the lowest during the projection period, from 2012 to 2016.
Besides that, the problems with the 2013 budget proposal with respect to fiscal management and resource allocation are as follows. With respect to fiscal management, as government lending of 3.2 trillion won is transferred to the private sector, the amount of lending will expand. However, this change can cause complication of the evaluation for lending by banks, so it may be difficult for enterprises that have to be supported by emergency management safety funds to borrow money from banks. With respect to resource allocation, although the budget of the economic sector, such as social overhead capital (SOC), increases, the rate of increase in the research and development (R&D) sector in 2013 decreases to 5.3%, which is lower than that of 2012 (7.3%). Under this tightened stance, it may not be possible for national finance to cope with economic slump.
2) Analysis of the 2012–2016 National Fiscal Management Plan
NABO forecasts that the annual growth rates of total revenue and total spending from 2012 to 2016 are 5.0% and 4.9% respectively, and the managed fiscal balance is 20 trillion won in deficit every year. On the other hand, the administration forecasts that these are 6.5% and 4.9% respectively. The administration forecasts that managed fiscal balance from 2014 will be in surplus and the fiscal surplus will grow. The administration intends to operate government finance in the most expanded stance in 2015. Contrary to the administration’s positive forecast, NABO forecasts that fiscal deficits from 2014 to 2016 will be 20.7 trillion won, 19.0 trillion won, and 19.3 trillion won respectively. Therefore, it is necessary for the administration to strengthen a tightened stance in 2014.
In addition, this report presents problems with the National Fiscal Management Plan and according solutions. First, the “2012-2016 National Fiscal Management Plan” is a rolling framework in which the multi-year fiscal plan is changed every year regardless of the previous plan, so it lacks effectiveness. Second, because the budget proposal and the midterm fiscal plan are submitted to the parliament in the same period, the midterm fiscal plan is not sufficiently reflected in the budget proposal. To avoid this problem, the submission period of the midterm fiscal plan should be brought forward. Lastly, a midterm fiscal plan submitted in the last year of a presidency is useless at the time of new presidency. Therefore, the submission frequency of the National Fiscal Management Plan may be adjusted from once a year to two times for five years such as the beginning and the third year of the tenure.
Economic Analysis Office