Bonds bust 500 trillion won barrier

For the first time ever, government bonds have exceeded 500 trillion won ($487.1 billion) at a time when household debt is at a record level and tax collection is shrinking.

According to the Korea Financial Investment Association, as of July 21, total treasuries amounted to 501.3 trillion won, with nearly 97 trillion won issued in the first seven months of the year. That’s nearly 20 percent more than in the same period last year.

The government has been increasing issuance of bonds since the 2008 global financial crisis. During the Lee Myung-bak administration more than 450 trillion won was issued.

As a result, government bonds exceeded 300 trillion won for the first time in March 2009 and soon broke the 400 trillion won in February 2012.

Issuance of government bonds has not slowed during the Park Geun-hye administration, as the president has promised an expansion of welfare without increasing taxes.

Last year alone, the government issued 136 trillion won worth of bonds.

The growing level of treasuries comes as some market experts raise concerns over huge household debt that stands stands at a record level of more than 1,024 trillion won.

Market experts already are speculating that with eased regulations on debt-to-income and loan-to-value ratios for mortgages, household debt will expand even further.

Meanwhile, as debt continues to expand, the government has seen tax collection shrink. Particularly this year, the Sewol tragedy has left a major dent in the government’s tax collection as consumers restrain their spending.

The Finance Ministry last week announced that in the first five months of this year, it collected 149.5 trillion won, only about 40 percent of this year’s total goal of 369.3 trillion won.

If that pace continues for the remainder of the year, it is estimated that tax collections would fall 8 trillion won to 10 trillion won short. If so, the government would face a shortfall for the third consecutive year.

Under such circumstances, some have raised the possibility that the government could raise various tax rates.

But others disagree, saying Finance Minister Choi Kyung-hwan has told companies the government will not impose increases in tax rates.

Additionally, stimulus policies unveiled last week showed that the Park administration economic team plans to stimulate the domestic market by encouraging households to spend, hence the easing of the regulations on DTI and LTV.

BY lee ho-jeong [ojlee82@joongang.co.kr]