The debt is too largeThe soaring government debt rings alarm bells. According to the consolidated settlement of accounts for fiscal year 2015, the nation’s total debt increased by 72 trillion won ($62 billion) to 1284.8 trillion won as of last December — a nearly twofold increase in four years. The debt that should be paid for by the central and local governments — 590.5 trillion won — accounted for 37.9 percent of our GDP.
But the government seems to be totally sanguine. It cites the OECD average last year of 115.2 percent of GDP. However, we cannot simply compare our number with the OECD’s because most of those countries use key currencies or at least enjoy protection from the eurozone. Also, those nations are mature welfare societies that have started a restructuring of their welfare systems amid a global economic slowdown — instead of calling for a massive fiscal input to advance their welfare system, as in the case of Korea, which has to meet explosive demand for welfare because of its ultra-low birthrate and fast-aging populations.
Nevertheless, we see two positive signs: a remarkable increase in the government’s tax revenue and a drastic decrease in its debts for public pension plans. The government borrowed 16.3 trillion won last year to meet a growing demand for public pensions, but the amount is only a third of the sum in 2014 — thanks to the government’s freezing of payouts for recipients and deferring of receiving time for civil servants.
Government debt arising from public pensions took up 51.1 percent of the 1,284.8 trillion won national debt. Government Employees Pension and Veterans Pension upped last year by similar amount — 8 trillion won and 8.3 trillion won, respectively — even though the size of the latter is only a fourth of the former. The relative increase in the Veterans Pension explicitly shows what would happen if the government doesn’t reform public pension systems. Coupled with the fast aging of populations, the debt from pensions will snowball soon. If the government shies away from mending the civil servants and veterans pension plans, it cannot reduce debt.
Yet our political circles are only focused on the April 13 general election with the main opposition Minjoo Party of Korea leading the pack with 119 trillion won in pledges followed by the ruling Saenuri Party with 56 trillion won and the splinter opposition People’s Party with 37 trillion won.
The government must find ways to fill its depleting coffers. The ruling party must scrap its promise of “welfare without tax hikes.”
JoongAng Ilbo, Apr. 6, Page 30