The 639 trillion won ($499 billion) fiscal blueprint passed on Saturday represents efforts by officials under President Yoon Suk-yeol to reduce South Korea’s debt dependence and wean the economy off pandemic-era stimulus.
A relaxation of coronavirus restrictions has allowed businesses to bounce back with less government support. That is giving policymakers a chance to focus on issues from an ageing population to slowing economic growth and mounting geopolitical uncertainty.
Economic growth is expected to decelerate in 2023 due to weaker exports and still-elevated interest rates. The Bank of Korea last month cut its growth forecast for next year to 1.7 per cent from 2.6 per cent.
The National Assembly also passed bills to cut the corporate tax by 1 percentage point in each of the four tax brackets and to delay the introduction of a financial investment income tax by two years, compromising on areas of disagreement between the ruling party and the main opposition.
Greater fiscal prudence dovetails with the Bank of Korea’s tightening cycle to restrain inflation. It may also help the won, which has been among the worst-performing currencies in Asia this year as the Federal Reserve stepped up its rate rises.