South Korea's fiscal spending would grow 5.7 percent next year, marking the biggest expansion since the global financial crisis, to bolster weak sentiment of economic agents, the finance ministry said Thursday.
The ministry asked the parliament to approve its 2015 budget plan, which demanded 376 trillion won (361 billion U.S. dollars) in government spending, up 20.2 trillion won, or 5.7 percent, from this year.
It was faster than a 4 percent increase in 2014, and posted the largest climb since a 10.6 percent gain in 2009.
The budget increase was in line with repeated pledges of Finance Minister Choi Kyung-hwan, who took over the top economic policy-making post in July, to maintain an "expansionary" fiscal policy until ordinary people feel the effect of fiscal stimulus.
Sentiment among consumers and businesses turned sour after the April ferry sinking disaster, which claimed lives of more than 300 people, mostly high school students. Consumers refrained from travel and entertainment, and companies delayed capital spending.
To support the government's efforts to boost the recovery, Bank of Korea (BOK) cut its benchmark interest rate by a quarter percentage point to 2.25 percent in August.
Choi recently said the BOK "has sufficient policy room" given the relatively high level of the policy rate compared with advanced economies, putting "political" pressures on the BOK to lower borrowing costs further.
The largest fiscal spending in six years will aggravate the country's fiscal soundness. Gross revenue, including tax and non- tax revenues, would grow 3.6 percent to 382.7 trillion won in 2015, lower than an initial estimate of a 6.2 percent increase.
The percentage of the country's fiscal deficit to gross domestic product (GDP) would rise to 2.1 percent 2015, the highest since 2.5 percent tallied in 2010.
National debt would expand to 570.1 trillion won in 2015. It equals to 35.7 percent of the expected 2015 GDP, the highest in the country's history.
By item, the largest portion of the budget will be spent on welfare-related sectors. A total of 115.5 trillion won would be set aside for health, welfare and labor sectors, accounting for 30. 7 percent of the total. It would be the first time the government welfare expenditure tops the 30 percent level.
Budget for public safety would jump 17.9 percent in 2015 compared with this year, posting the highest expansion among all budget items as the ferry sinking accident boosted demand for spending on the sector.
About 37.56 trillion won will be allocated to national defense in 2015, up 5.2 percent from a year earlier. It would be the highest increase since 6.2 percent in 2011.
The increased budget would be spent mainly on improving welfare of enlisted soldiers. An additional 200 billion won would be allocated to establishing its own missile-defense system, with budget for defense R&D set to rise 6.2 percent to 2.48 trillion won next year.