Watching the coffersThe third fiscal strategy meeting under President Park Geun-hye was no different from the two that preceded it. The focus was on sustaining fiscal integrity through reforms in public finance, including at the local government level, while bolstering the economy. Greater weight was given to fiscal integrity. Ballooning welfare costs, money-losing pension schemes and reduced tax revenues have constrained budgeting. For the first time, the government laid out a fiscal management plan through 2060.
As the president emphasized, efficacy is essential in fiscal management. But that is easier said than done. This year’s economic prospects are dim. The Ministry of Strategy and Finance officially indicated that supplementary budgeting may be inevitable. The government cannot bother to rein in its fiscal accounts when trying to revive an economy in trouble. An increase in public debt could be inescapable. The public would understand if the government must issue more debt in order to improve the economy. But taxpayers won’t tolerate fiscal leakage via overspending to provide for comfortable post-retirements for government employees and loopholes in subsidies and social benefits. Extra scrutiny is essential under such a tight budget. According to a report last month, the national debt, which includes loss reserves for government employees’ and veterans’ pensions, reached 1,211.2 trillion won last year, up 93 trillion won ($85.2 trillion) from 2013. Half of the increase - 47.3 trillion won - went to cover the losses from pension schemes for government employees and soldiers. Fiscal reform and austerity will be of no avail until this major leak, government employees’ pensions, is plugged.
The Park Geun-hye administration incurred a fiscal deficit of 21 trillion in its first year and 29.5 trillion won last year. Even by conservative estimates, the government will be liable for a deficit amounting to 140 trillion when the president’s tenure ends. By 2018, national liabilities are estimated to exceed our gross domestic product by 40 percent. The government must first fix the government employees’ pension system.
The question is whether the government can push ahead with austerity and reforms amid growing welfare demands and elections. The “Pay-go” act that demands strict financing plans for any expenditure increase has been gathering dust at the National Assembly for three years. Lawmakers all agree that such a legal guideline is needed, but they will compete with new spending plans to win votes during next year’s general election. The government must protect its coffers.
JoongAng Ilbo, May 14, Page 34