[EDITORIALS]A ‘tax and spend’ budget

The draft of next year’s budget has been announced. The administration’s total budget request for next year is 221.4 trillion won ($214 billion), an increase of 6.5 percent over this year’s spending. That is not an excessive rise if we take it into account that the nominal economic growth rate, including both real growth and inflation, is estimated at 7.5 percent next year by the Ministry of Planning and Budget.
What matters is the way the budget is allocated. Welfare and defense get the biggest increases in next year’s budget plan. Putting aside the budget we have to have for defense reform and improvements in draftees’ lives in the barracks, it is clear that the budget request puts a major emphasis on funding for welfare and income distribution programs. The Roh administration’s signboard advertises welfare and distribution as its platform, so the budget naturally supports that platform. It is important that the government provide more help for socially weak and vulnerable people like the poor, the elderly and the handicapped. But it is not desirable that welfare is emphasized even at the sacrifice of spending for economic growth when the expansion of Korea’s growth potential is urgent. Actually, the budget for growth-related fields such as education, social overhead capital and support for small and medium industries has been reduced; only the budget for research and development spending will grow.
In order to accommodate more welfare spending despite sluggish growth, the government said it would collect more taxes and issue bonds to cover an expected budget deficit. That is, it has tabled a deficit budget as its first draft. Consequently, the tax burden and the national debt are to increase simultaneously. The deficit in revenue expected next year results from sluggish growth this year and last year. When the economy grows fast, revenue increases even though tax rates are not raised. Since a revenue increase is not expected, the administration plans to raise tax rates on liquefied natural gas and soju liquor. The government claims that the present level of national debt is manageable because the per-capita tax burden and national debt compared to gross domestic product are both lower than in advanced countries. That is a dangerous way of thinking. How can people understand a government that says the economic burden is still bearable although taxes and debt will increase while the economy is slow?