The end of populism
A long-term fiscal outlook drawn up by the Ministry of Strategy and Finance should be a wake-up call. By 2060, the ratio of national debt to gross domestic product would increase by 20 percentage points to reach 62.4 percent if public spending goes on at its current pace. The national pension and various other social pensions would run out of reserves from 2025. If the government leaves the situation unattended, salaried workers will have to pay out 40 percent of their monthly paycheck for various social taxes starting from 2060.
But this figure is actually conservative. If public spending increases from various factors, the debt ratio could even shoot up to 158.4 percent. About 10 trillion won ($8.57 billion) in extra spending could be inevitable by 2020 due to competitive spending pledges by future presidential candidates. The basic pension also could be raised when it becomes connected to the income of national pension subscribers. The growth rate could fall by 0.3 percentage point annually if structural reforms are delayed. The three factors are not far-fetched, and the grim scenario doesn’t even include the possibility of a sudden unification of the two Koreas.
Some would ask why we should worry about things nearly half a century in the future. Korea’s current debt levels are far from alarming. If the economy keeps growing with solid productivity, increasing debt should not be a concern. But the prospect of the Korean economy taking the most optimistic path is increasingly slim.
Politicians habitually turn out populist policies and vie to increase the budgets for their constituencies. Various agendas to reform the economy, society and labor market are stuck in legislative deadlock. A bill to enforce the pay-as-you-go principle, which would make the government and legislature come up with funding plans before they push for legislation, has been shelved in the National Assembly for so many years that it’s actually on the brink of heading into the trash can.
The best solution for the national debt is to strengthen the economy and society through reforms and boost growth, jobs, and income to generate greater tax revenue. Our legislature has kneejerk reactions to government-led legislation and must pay heed to the warnings of the long-term report.
JoongAng Ilbo, Dec. 7, Page 34