Opening Pandora’s boxHere’s a brainteaser: Will Saenuri Party Rep. Choo Kyung-ho favor a supplementary budget or not? The answer is, of course, because “choo kyung” is an acronym in Korean for supplementary budget and “ho” means OK.
Choo was true to his name the other day. In a ruling party special committee that he vice-chairs, Choo demanded the government act in sync with the Bank of Korea’s latest expansionary move — cutting the base interest rate to a new all-time low of 1.25 percent — and provide some fiscal stimulation by creating a supplementary budget.
Choo served as vice finance minister and as minister of the Office for Government Policy Coordination before he ran in the election for the 20th National Assembly in April. If he raised the issue, he must have gotten the go-ahead from the party, Blue House and government.
Deputy Prime Minister for the Economy Yoo Il-ho floated the idea last week. He said the government would come up with an “adequate policy mix” as soon as possible. Some time ago, he had flatly shot down the possibility. The opposition camp also supports an increase in the budget to cope with record-high youth unemployment.
A supplementary budget appears to be in motion amid bipartisan agreement. The next question is how much and where the extra money will be spent. The government is purportedly expected to propose a 15 trillion won ($13 billion) supplementary budget.
I personally disapprove of the plan. I believe it would open a Pandora’s box. First of all, the need is questionable. The government would cite Article 89 of the National Fiscal Act to justify a supplementary budget with concerns of recession and massive layoffs. The government fears massive layoffs and social unrest from the shipbuilding restructuring. But that would make the government an incompetent surgeon readying tons of painkillers because he is unsure he can perform the surgery of removing a tumor quickly and precisely.
Then there is the doubtful motive of the opposition. The Minjoo Party wants to secure extra spending for day care subsidies and youth joblessness in return for endorsing a supplementary budget bill. A hearing on corporate restructuring would also become a prerequisite.
Minjoo Party floor leader Woo Sang-ho wants a hearing on meetings in the so-called Blue House West Wing, where policy makers discreetly drew up bailout plans, and its interim leader, Kim Chong-in, demands a hearing on a broader restructuring theme.
It is unclear whether the party is out to challenge the Blue House and government or create a supplementary budget. The discussion on a budgetary increase is likely to become a hotbed for political wrangling from its creation to its completion. In the end, the purpose of a supplementary budget designed to stimulate the economy and jobs would be lost.
Third, the whole discussion would stir up controversy over tax hikes. The government wants to increase budgeting for revenue after seeing a smooth collection of taxes so far this year. But that’s shortsighted. Extra tax revenue should be spent to reduce national debt. If the government aims to expand tax revenue, the opposition will demand higher corporate taxes.
A supplementary budget should be a last resort for a government. Any leftovers in fiscal spending should first go to pay off public debt.
But all governments in the past have used it to create new debt. Supplementary budgets were sought whenever there were natural disasters like floods and droughts. President Roh Moo-hyun wanted to stop the habit of resorting to supplementary budgets. The previous government created extra budgets twice in its five-year term. The incumbent government has raised them twice already in the last three years, and yet the economy has been running below the 3 percent target. National liabilities instead snowballed.
The government is nevertheless risking another supplementary budget to build a kind of shock absorber to protect from repercussions of corporate and industry restructuring. The odds are against the government. So far, it was able to blame the previous government for poor economic performance. From now on, the onus will fall on the incumbent administration. Restructuring will be judged by how it is carried out. Who would not be fearful of the impact of massive layoffs and wasting of tax money? The government can hardly turn down the opposition’s offer to help in creating an extra budget.
But money is not the solution. The economy is not in a wreck because it lacks money. Restructuring must come first before drumming up new money or spending plans. The deputy prime minister should have saved his last resort to the end and spearheaded the restructuring drive instead. The Pandora’s box will open whether we like or not. Let’s hope for a miracle. If a supplementary budget must be created, let it be spent entirely on restructuring.
JoongAng Ilbo, June 23, Page 30
*The author is an editorial writer for the JoongAng Ilbo.