SEOUL South Korea’s government plans to raise budget spending to US$510 billion for 2025, although the pace of growth is less than previously projected, as Seoul seeks to tighten fiscal discipline.

In its annual spending plan released on Tuesday, the finance ministry set total government expenditure for 2025 at 677.4 trillion won (US$510.5 billion), up 3.2% from 2024.

That is slightly bigger than this year’s 2.8% increase, the smallest boost since fiscal statistics were revised in 2005, but less than the 4.2% previously projected for 2025.

"The government will continue efforts to improve fiscal sustainability to ease the burden on future generations and prepare for mid- and long-term expenditure expected from an ageing population and slowing economic growth," the ministry said.

The conservative Yoon Suk Yeol administration has prioritised improving the fiscal position since taking office in May 2022, while also proposing a series of tax cuts despite weak revenue due to slowing economic growth.

In 2025, tax revenue is projected to rise 4.1%, after rising 6.7% in 2024, on higher corporate earnings, the ministry said. In 2023, it fell by a record 13.1%.

Asia’s fourth-largest economy is expected to grow 2.6% this year and 2.2% next year, according to the government’s forecasts. Last year, the economy expanded 1.4%, its weakest pace in three years.

Last week, the presidential office and the ruling People Power Party expressed dissatisfaction in rare comments after the central bank kept interest rates at a 16-year high.

South Korea’s fiscal deficit will narrow to 2.9% of gross domestic product (GDP) in 2025, from 3.6% in 2024, the ministry said. However, the debt-to-GDP ratio is seen rising to 48.3% from 47.4%.

Spending on social welfare will be raised by 4.8% to 249 trillion won, defence by 3.6% to 61.6 trillion won, and research by 11.8% to 29.7 trillion won.

Among major projects, the government plans to increase public housing by a record 252,000 units, introduce 4.3 trillion won in cheap loans for corporate investment in the semiconductor industry, and raise childbirth support.

The government will issue 201.3 trillion won of treasury bonds in 2025, up from 158.4 trillion won planned for this year. The net increase in bonds is projected at 83.7 trillion won, with planned issuance to finance the fiscal deficit seen at 86.7 trillion won.

The budget will be submitted to the national assembly, which is currently controlled by the opposition.

  - Reuters