Analysis of the Third Installment of a Supplementary Budget Bill for 2020
Published on June 26, 2020
Published by Budget Analysis Division
On June 4, the government sent its “Third installment of the Supplementary Budget Bill for 2020” to the National Assembly in the amount of 35.3 trillion won to alleviate the current economic crisis and promote the transition to the post-COVID-19 era. This is the first time a supplementary budget bill was sent three times during the same year since 1972, and it is the largest ever posted amount at 59.2 trillion won when combined with the 1st (11.72 trillion won) and 2nd supplementary budget bills (12.2 trillion won). Such an unprecedented level of bold fiscal expansion indicates the severity of the economic shock caused by the COVID pandemic.
The supplementary budget bill consists of 11.4 trillion won in reductions to national tax revenue and 23.9 trillion won in budget expenditures. The government reduced tax revenues by 11.4 trillion won as tax revenue deficits are expected following the pandemic-induced decline in economic growth rate, sluggish economic activities, and government tax cuts. In addition, it plans to spend an additional 23.9 trillion won to promote major fiscal policies such as financial support, enlargement of employment and social safety nets, and the Korean version of the New Deal, etc. In the meantime, worsening fiscal soundness seems inevitable as funding for the additional budget consists of 10.1 trillion won in expenditure restructuring, 1.4 trillion won in self-financed fund schemes, and 23.8 trillion won in government bond issuance. Furthermore, the national debt is estimated to stand at 840.2 trillion won, accounting for 43.5% of GDP, and the consolidated fiscal balance is expected to deteriorate by 22.7 trillion won with a deficit of 112.2 trillion won compared to the second supplementary budget installment. For these reasons, while dealing with the economic crisis caused by COVID-19, sound financial management is desperately needed to bring about fiscal stability in the mid-to-long term.
The National Assembly Budget Office published its “Analysis Report of the Third Installment of the Supplementary Budget Bill for 2020” to support the extensive review of the supplementary budget bill by the National Assembly. This report is composed of “Comprehensive Analysis” and “Analysis by Committee.” The “Comprehensive Analysis” contains an examination of the requirements to formulate supplementary budgets, financial resources needed, the size of revised national tax revenues, fiscal soundness, economic effects, and major policies. In the “Analysis by Committee,” an in-depth analysis was conducted on the urgency, necessity, enforceability within the year, and effectiveness of individual projects organized by each ministry.