The government has drawn up a supplementary budget of 30.5 trillion won to support the sluggish economy and resolve livelihood concerns. Although various financing options, including the issuance of Government Bonds, were mobilized to cover the increase in expenditures and the budget shortfall, nearly two-thirds of the total financing is expected to be covered by debt, leading to a significant increase in both government debt and fiscal deficit.
On the 19th, the government deliberated and approved the second supplementary budget for 2025 at a meeting of the State Council. Following a negative first-quarter gross domestic product (GDP) figure, marking four consecutive quarters of low growth around 0%, the government has determined that it needs fiscal support to back a rebound in the economy in the second half of the year.
This supplementary budget consists of 20.2 trillion won in increased expenditures and 10.3 trillion won in adjusted revenues. Of this amount, 15.2 trillion won is allocated for economic revitalization, while 5 trillion won is earmarked for livelihood stability. Key projects include early implementation of social overhead capital (SOC), boosting export vitality, support for small and medium-sized enterprises and youth, disaster recovery, and stabilization of agricultural product supply.
The government will cover 5.3 trillion won of the total supplementary budget funding through expenditure restructuring, 2.5 trillion won by using surplus funds from existing funds, and 3 trillion won by adjusting the size of foreign currency bonds, with 19.8 trillion won, accounting for 65% of the total, raised through the issuance of Government Bonds.
Vice Minister of Economy and Finance Lim Chi-kwon noted, "The market has anticipated the supplementary budget around 20 trillion won and significant Government Bonds issuance since the beginning of the year," adding, "The current level of Government Bond interest rates already reflects these expectations, so additional issuances are not expected to shock the market." He continued, "The demand for Government Bonds is solid, and the reduction in foreign currency bonds will not burden the foreign exchange market, which is why this decision was made considering both fiscal conditions and market acceptability."
However, concerns about the scale of Government Bonds issuance have also been raised. Seok Byeong-hoon, a professor at Ewha Womans University, pointed out, "The increase in deficit Government Bonds issuance is too large," cautioning that "the rise in Government Bond interest rates could impact overall market interest rates, constraining household consumption capabilities."
As a result of this supplementary budget, government debt is expected to increase from 1,280.8 trillion won to 1,300.6 trillion won, while the fiscal deficit is projected to rise from 86.4 trillion won to 110.4 trillion won. The debt-to-GDP ratio is expected to rise from 48.4% to 49.0%, an increase of 0.6 percentage points, and the fiscal deficit ratio will expand from -3.3% to -4.2%.
Vice Minister Lim stated, "A 4.2% deficit relative to GDP and 49.0% government debt are not considered risky levels by international standards," adding, "Fiscal sustainability is being given adequate consideration through expenditure restructuring and fund utilization."
The revenue adjustment reflects the downward revision of annual revenue forecasts based on this year's revenue performance. The government anticipates that national tax revenue will decline by 10.3 trillion won from initial expectations and has incorporated this into the supplementary budget.
By tax category, it is projected that corporate tax will decrease by 4.7 trillion won, value-added taxes by 4.3 trillion won, and a combined total of 2.3 trillion won from transportation tax, special consumption tax, and education tax will also decline. While corporate tax increased compared to the previous year, it fell short of expectations, and the performance of value-added tax was revised downward due to sluggish private consumption and continued fuel tax cuts. In contrast, 900 billion won in inheritance tax increases were factored in, influenced by a higher-than-usual number of unexpected factors such as the deaths of high-income taxpayers.
Vice Minister Lim explained, "In a situation where revenue shortfalls are clearly observed, reflecting this in the budget is a normalization of fiscal operations," stating that the decision on revenue adjustments was based on economic conditions and revenue performance.
Expenditure restructuring focused on projects that would be difficult to execute within the year and adjustments due to changing conditions. Notable examples include adjustments to United Nations contributions and reductions in university tuition-linked budgets. Vice Minister Lim stated, "We thoroughly adjusted according to practicality based on project conditions and priorities," emphasizing, "This is to minimize the burden on the public while reflecting the budget needed on-site."
Utilization of fund resources involved allocating surplus funds from various funds, such as the Employment Insurance Fund, housing fund, and power fund, to support the expenditures of those funds without repurposing the fund assets for other uses. You Byung-seo, head of the Ministry of Economy and Finance's Budget Office, stressed, "This time, we did not use fund resources for other sectors as in the past."
Regarding adjustments to foreign currency bond reductions, it was explained that this was a measure taking into account exchange rate stability and the capacity of the foreign exchange fund's assets. A Ministry of Economy and Finance official stated, "The foreign currency assets of the foreign exchange fund are approximately 274 trillion won, which is ample, and since the exchange rate is stable, a reduction of about 3 trillion won in foreign currency bonds will not burden the foreign exchange market."
In response to questions about whether this supplementary budget could be interpreted as a more aggressive fiscal management stance than the main budget, the government clarified that it is more about reacting to the situation than a fundamental shift in policy. Vice Minister Lim stated, "Rather than a switch to expansionary fiscal policy, it is about making necessary responses in the current phase," adding, "We will continue to pursue both fiscal sustainability and proactiveness," and he concluded, "Both the first and second supplementary budgets are responses based on the circumstances, so please assess the stance through the main budget."
Concerns about non-compliance with fiscal rules have also been raised, but the government maintains that a flexible approach is necessary. Vice Minister Lim noted, "It is not easy to adhere to the -3% fiscal balance ratio stipulated by the fiscal rules law, following the previous government," suggesting that, "In fact, rigid application could lead to adverse effects on fiscal management, and it is time to reassess acceptability and feasibility."