Throwing money at a problem

The government has come up with a budget for next year amounting to a whopping 470.5 trillion won (＄424.4 billion), a 9.7 percent increase from this year. The growth rate is the highest since 2000 except for a 10.6 percent surge in 2009 after the shocks from the global financial meltdown. The government said it did not raise the budget because of any economic crisis. Deputy Prime Minister for the Economy and Finance Minister Kim Dong-yeon explained that a massive budget is required for structural reform of the economy.

But his explanation is not persuasive because our economy’s structural problems — an ultra-low birth rate, a fast ageing society and weakened growth potential — are not new. That’s why suspicions have arisen over the government’s big spending and whether it’s meant to deal with a crisis indeed: its controversial income-led growth policy.

Such a budget will only damage our fiscal health. The government argues that though our fiscal balance against GDP will deteriorate from negative 1.6 percent this year to negative 1.8 percent next year, it can be controlled thanks to increased tax revenues expected this year and next year. But we can hardly buy such optimism. Regarding fiscal sustainability, Kim already said the government should pay heed to our fiscal solidity due to uncertainties lying ahead. The average annual growth rate of the government’s expenditure for 2018-2022 is 7.3 percent, the highest since 2004. But in the same period, tax revenues are expected to increase by 5.2 percent annually. When spending outpaces revenues, a country’s fiscal health cannot help but deteriorate.

The biggest budget increase comes in such areas as public health, welfare and employment, which amounts to 162.2 trillion won, up 17.6 trillion won from this year. In particular, the budget for creating jobs has reached 23.5 trillion won, a 22 percent hike from this year. A new concept of social overhead capital — aimed at improving the public’s living environment — also emerged. That basically means building infrastructure, which can create jobs.

What attracts our attention is the disappearance of the words “income-led growth” from next year’s budget. Instead, it used “improvement in income distribution and expansion of the social safety network.” In Tuesday’s cabinet meeting, President Moon Jae-in said it is the time to find ways to complement the government’s policy instead of returning to the days of low growth and wealth polarization. He must not confuse criticisms of his policies with a demand to return to the past.

JoongAng Ilbo, Aug. 29, Page 30