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II. Overall National Development Objectives
1. Long-term Development Objectives
Until the 1990s, the economic sector was the top priority for the Korean Government’s investment; the Government expanded social overhead capital (SOC) and nurtured key industries, underpinning the rapid growth of the national economy during the 1970s and 1990s. 「Five- Year Economic Development Plans」 were implemented during this period and all efforts were concentrated to work towards economic development. This government-led economic policy enabled world’s fastest economic growth; however, the widening gap among different social classes had risen as a social issue. Thus, government strategies have been emphasizing both economic development and social welfare service improvement.
In 2006, the Korean Government established the first comprehensive long-term national strategy looking ahead to the next generation called 「Vision 2030」. 「Vision 2030」 is designed to cope with problems facing the nation today and tomorrow. Korean Government has been facing new challenges such as low birth rate, population aging, widening of income gap, and these issues directed the Government to focus more on welfare investment. The Government recognizes it as one of important expenditures that it has to provide for the growth potential of the country. Thus, achieving sustainable development that emphasizes both growth and welfare has become Korean Government’s one of top priorities. The Government plans to increase its expenditure in the welfare sector progressively so that long-term economic growth can be achieved through social integration. Fiscal investments will target preemptive investments that stimulate broad-based economic growth. At the same time, the Government will focus on institutional innovation that minimizes fiscal expenditures. The Government is committed to reinforcing the economic growth potential through increased investment in R & D and higher education, while moving to address the issues concerning the blind spots in the social safety net and extend support for enhanced social services to raise the quality of life for all citizens.
As Korea’s market economy further develops, the private sector is increasingly becoming the dominant figure of the national economy. In the area of infrastructure development which is necessary for sustainable economic growth, the role of the private sector is expected to increase. To promote private investment in infrastructure sector, the Government will focus on establishing policy frameworks that enhance efficiency and transparency and developing investor-friendly market environment.
2. Investment Priorities
In order to strategically support government planned projects, Korean Government has allocated government expenditure to prepare for medium-to-long term development such as Five-Year National Fiscal Management Plan. This plan functions in 5-year-cycle but can be altered taking other factors into consideration.
National Fiscal Management Plan includes the size of total expenditure, distribution among different sectors, balance of revenue and expenditure, and national debt. Based on this Plan, ceilings for each sector are determined, and these are important factors in planning budget for the year. Stronger connection between the Plan and the yearly budget enable strategic allocation of national resources for government priorities.
As Korean Government’s revenue and expenditure have put economic development as major priority, budget that was allocated for economic projects was about 20%. It has continuously reduced, however, as welfare and living standard portions have been on the rise.
In order to achieve highly efficient economic development, Korean Government has concentrated its expenditure on economic sectors that are highly productive such as expansion of SOC and cultivation of strategic industries. Since 1970s, the Government has continuously been spending 20% of its budget on economic development.
With the development of market economy and the change of economic system that involves more private sector participation, it has become inevitable to alter financial resource allocation strategy. Compared to other OECD member countries which only spend 10% of their budget for economic development, Korean Government’s budget was concentrated on economic spending and relatively less on the development of welfare system.
Hence, increased spending for social welfare has been planned as it will be a catalyst for further economic development. Restructuring of the society will also take place to minimize burden that would be imposed on the Korean people. In order to achieve such a goal, the private partnerships will be more emphasized and government support for the private investors will be one of priorities for Korean Government.
In this context, the focus of Government strategy for budget allocation is as follows;
First, securing minimum standard of living is high on the Government's agenda. This initiative includes alleviating the economic and social polarization by expanding social safety net and stimulating class mobility while taking a proactive action against low fertility rate challenges and an ageing society by promoting the well-being of families with young children and building more facilities for senior citizens. Furthermore, the Government is planning to expand the scope of the social welfare services including health and hygiene, education, culture, etc.
Secondly, as investment for infrastructure development has expanded capacity of various facilities, Korean Government will now put more emphasis on the efficiency of investment than the size of it. Meanwhile, in order to effectively react to regulations on expenditure and to ensure timely provision of facilities, the Government will actively bring in private investment and diversify other funding sources.
Third, the investment will be substantially increased in R&D and human resources cultivation in order to secure future growth potential. For instance, R&D investment will be made to develop next-generation core technology while human resources investment will be to nurture top-notch talents in the fields of information technology (IT) and biotechnology (BT).
Fourth, the public services regarding the national security and crisis management will be further expanded so that the public's trust in the Government can be elevated and their satisfaction in administrative services can be improved.
