The ruling Saenuri Party and the Finance Ministry on Thursday reached a consensus to push an expansionary fiscal policy next year to stimulate the economy.

They also agreed to expand military expenses to bolster countermeasures against possible provocations of North Korea.



During the bilateral policy-coordination meeting at the National Assembly, they reportedly shared the view that the overall outlook in the market on the 2016 economy is not so positive, compared to earlier projections.

While they have vowed to put efforts not to harm the state fiscal soundness, they said it was necessary for the government to inject stimulus funds to reach a certain level of growth ― as an expansion within an allowable territory.

“In a move to keep up the momentum for an economic recovery, buoyed by the extra budget (proposed in the first half), (the ministry) is considering operating the budget in an expansionary manner,” said Deputy Prime Minister and Finance Minister Choi Kyung-hwan at the meeting.

But he added that the government will prevent tax revenues from failing to meet the target by projecting the GDP growth outlook conservatively, compared to past years.

The Saenuri Party is calling for the ministry to carry out a stronger fiscal expansion, apart from the 2015 extra budget, government officials have expressed skepticism over the party proposal.

The two sides are scheduled to fine-tune the level of expansion in the coming weeks, as the ministry clarified that the supplementary budget was mainly targeted at making up for industry losses from the outbreak of Middle East respiratory syndrome.

However, they have not discussed whether to raise corporate taxes for conglomerates.

The ministry earlier said that tax authorities were considering easing tax probes on major business groups to communicate the Park Geun-hye administration’s determination to spur the economy.

Such policy moves have posed a dilemma and invited a backlash among some opposition lawmakers, as the government was already operating at a deficit.

The government posted its third ever decline in tax revenue in 2013. Previously the yearly figure had only fallen during the 1997-98 Asian currency crisis and the 2008 global financial crisis.

Meanwhile, the party-government’s spending plan is also focused on reinforcing the combat readiness of troops near the demilitarized zone in the inter-Korean border in the wake of a land mine explosion that maimed two South Korean soldiers.

While the government will allocate more funds to strengthen the military capability, it would simultaneously push forward inter-Korean projects to expand economic ties with Pyongyang.

“Policies on establishing the DMZ Peace Park would be pushed,” he said. Others could include talks with the North to relink the Gyeongwon railway connecting Seoul with Wonsan in the North, he added.

By Kim Yon-se (kys@heraldcorp.com)