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Gov't proposes 3 pct increase in 2016 budget

The government seeks to hike its spending for next year by a modest 3 percent from this year to give the country's economy a much-need shot in the arm amid unfavorable domestic and external conditions, the finance ministry said Tuesday.

The government will ask the National Assembly to approve its 386.7 trillion won ($324.6 billion) budget for 2016, larger than the 375.4 trillion won earmarked for 2015.

The budget proposal, endorsed by the Cabinet on Tuesday, will be sent to the National Assembly on Friday, with the Constitution giving lawmakers until Dec. 2 to approve it.

The increase marks the lowest gain in government spending since the 2.9 percent growth tallied for 2010.

The expansionary budget comes amid escalating worries that Asia's fourth-largest economy may lose steam further down the road due to slumping exports and anemic domestic demand, which is feared to drag the country into a prolonged period of low growth.

South Korea's exports plunged 14.7 percent from a year earlier to $39.33 billion in August, the largest on-year drop in six years.

August also marked the eighth consecutive month of decline, sparking concerns over the performance of the economy that relies heavily on overseas demand for growth.

Consumer spending, another driver of the country's growth, has remained in the doldrums. Private consumption was hit hard by the outbreak of Middle East Respiratory Syndrome in late May that claimed 36 lives.  

Against such a backdrop, the finance ministry predicts the Korean economy to expand 3.3 percent on-year in 2016, down from its initial growth estimate of 3.5 percent made in June. It has downgraded the 2015 growth projection to 3.1 percent from an original 3.3 percent.

Senior policymakers stressed that despite a slow gain in tax revenue, South Korea needs an expansionary budget stance in order to weather unfavorable factors at home and abroad. Gross tax revenue is estimated to reach 391.5 trillion won this year, up just 2.4 percent from this year, due to the country's sluggish economic growth.

"(The budget increase) comes amid growing downside risks for the South Korean economy, such as sluggish recovery in advanced economies, a slowdown in emerging markets, China's risk and a possible U.S. interest rate hike," Finance Minister Choi Kyung-hwan said of the 2016 budget proposal.

China's economic slowdown has been a major drag on the South Korean economy as the neighboring country is Seoul's biggest export market.

Vice Finance Minister Bang Moon-kyu echoed Choi's view. "South Korea needs to expand fiscal spending in order to cope with changes in the global economy," he told reporters in a pre-announcement briefing.

The proposal calls for the government to spend the largest chunk of the 2016 budget on health, welfare and labor sectors. Some 123 trillion won has been earmarked for the areas, or 32 percent of the total.

In particular, 15.8 trillion won, or up 12.8 percent from this year, has been set aside to help the country grapple with high youth unemployment. In July, the jobless rate for those aged 15-29 stood at 9.4 percent, much higher than the 3.7 percent average for the entire country.

The government seeks to mark up defense spending by 4 percent to 39 trillion won next year to build up the country's capabilities against North Korea as well as raise wages for soldiers.

Despite gains in such areas, the government plans to cut its spending on social overhead capital by 6 percent from this year to 23.3 trillion won, while slashing expenditures on industry and energy sectors by 2 percent to 16.1 trillion won.

The government expects to collect 391.5 trillion won in total tax revenue in 2016, up 2.4 percent from this year, with its fiscal deficit rising to 37 trillion won next year from 33.4 trillion won in 2015.

The increased fiscal deficit is expected to make overall government debt jump 50.1 trillion won on-year to 645.2 trillion won in 2016. The size of debt will stand at 40.1 percent of the gross domestic product in 2016, up from 38.5 percent forecast for this year, marking the first time that the debt-to-GDP ratio will surpass the 40 percent mark.

The government also unveiled its mid- and long-term fiscal management plan that calls for trimming the ratio of its fiscal deficit to GDP to 0.9 percent by 2019 by streamlining spending and getting rid of tax breaks. It says the ratio will spike to 2.3 percent in 2016 from 2.1 percent in 2015.

The government, meanwhile, estimates that national tax revenue will likely grow at an annual average of 4 percent until 2019, with spending rising 2.6 percent annually over the same period. The tax burden ratio is projected to edge down to 18 percent in 2016 from 18.1 percent this year. (Yonhap)