Government debt rising faster than expected

The Korean government’s debt has reached a new milestone, passing the 600 trillion won ($540 billion) mark and growing faster than the government’s initial target.

The record comes just two years after national debt surpassed 500 trillion won in 2014.

According to the Ministry of Strategy and Finance, the central government’s debt as of July amounted to 600.3 trillion won, about 1.5 percent or 8.6 trillion won more than in June. When compared to the previous year, July’s accumulated debt grew by 7.8 percent or 43.5 trillion won.

The government at the beginning of the year projected this year’s central government debt to stand at 610.5 trillion won but later lowered it to 603.2 trillion won when it proposed a supplementary budget that was passed earlier this month.

The new numbers show the growth of government debt has been accelerating, considering it took three years for debt to reach 500 trillion won in 2014 from 400 trillion won in 2011.

The ministry said July’s government debt rose because repayments on housing bonds scheduled for that month, which were issued by the government to generate funds necessary to proceed with housing projects, were delayed to August.

“In the case of July, we make the debt repayment on housing bonds on the 31st,” a ministry official said. “But because this year, the last day was on a Sunday, the payment was made in August.”

The bond repayments amount to roughly 1 trillion won every month.

The ministry added that treasury payments are made every three months, so during intermittent months like July, the government’s debt figure usually increases.

The rising growth rate of government debt is expected to put a heavy burden on the government.

According to a recent report by the Korea Institute of Public Finance, between 2016 and 2060, the government’s spending is expected to exceed its net income, affecting the country’s fiscal soundness. Average spending, largely for welfare expenditures, is estimated to see average annual growth of 4.4 percent, whereas income will grow at an average of 3.3 percent.

In its recent budget plan, the government projected next year’s debt to reach 682.7 trillion won.

Meanwhile, the government continues to enjoy growth in taxes collected. As of July, the government collected 155.4 trillion won, nearly 15 percent or 20.1 trillion won more than a year ago. The amount collected so far makes up 66.8 percent of the target total for this year, much better than the 62.7 percent performance seen a year earlier.

Last month, the government was able to collect the most from value-added taxes, which amounted to 16.6 trillion won. This brought the balance so far from value-added taxes to 47.2 trillion won, marking 79 percent of the government’s target for the year. The larger collection of value-added taxes came from a 4.3 percent increase in consumption compared to a year ago.

This rally, though, is expected to decelerate in the coming months. One of the reasons consumption grew this July compared to a year ago was largely because the country last year saw a sharp drop in spending after the outbreak of Middle East respiratory syndrome.

When compared to spending in June, July actually saw a drop of 2.6 percent, after the government’s individual consumption tax cut aimed at encouraging people to spend ended on June 30. In fact, automobile sales, which benefited the most from the tax cut, saw a plummet of 26.4 percent compared to the previous month.

Income taxes made up the second-largest pool collected in July, at 5.9 trillion won, bringing the accumulated amount as of that month to 41.4 trillion won. A hot real estate market and improvement in self-employed businesses are believed to have been the main contributors to the increase in July.

In the same month, the government collected 1.8 trillion won in corporate taxes, bringing the total to 30.2 trillion won.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]