Government debt balloons even as tax collection increases

The central and local government’s debt grew last year to more than 600 trillion won ($533 billion) even as they collected a large amount of taxes.

However, the larger concern has been the deepening liabilities of public servants and military pension payments that have pushed the overall national debt to more than 1,400 trillion won for the first time and is expected to grow due to the aging population.

The government and local governments owed 627.1 trillion won last year, according to the Ministry of Strategy and Finance. This is a 5.7 percent increase or 35.7 trillion won more than the previous year. The debt is equivalent to 38.3 percent of the nations’ GDP, which is relatively lower than other advanced economies including the U.S. and Japan. The U.S. central and state government’s debt to its GDP is at 115.6 percent, which is slightly below the OECD average at 116.3 percent while Japan exceeds at 233.7 percent.

This indicates that Korea has a relatively sound debt-to-GDP ratio and therefore is considered as one of the strong economic fundamentals.

“Even when you compared to the rate these debt are increasing, it is far slower than the OECD’s average,” said an official at the Korean Finance Ministry.

In fact the government’s debt to GDP ratio has increased only 9.6 percentage points compared to 2007’s 28.7 percent while the OECD average during the same period has increased 41.9 percentages point during the same period.

“International agencies such as the International Monetary Fund as well as credit score evaluators like Moody’s and S&P take Korea’s fiscal soundness highly,” the official added.

The government debt also is 10.6 trillion won smaller than last year’s budgeted 637.7 trillion won. This was largely due to the large amount of taxes collected. The government was able to collect 16.9 trillion won more than a year ago to 345 trillion won while spending added 12.8 trillion won to 332.2 trillion won, resulting in a net profit of 12.8 trillion won.

When breaking down the central government’s debt when compared to the previous year increased nearly 6 percent or 35.4 trillion won to 591.9 trillion won while those of local governments inched 0.85 percent or 300 billion won to 35.2 trillion won.

However, when adding the contingent liability of public servants and military pensions the nation’s debt amounts to 1,433.1 trillion won, which is 139.9 trillion won more than a year earlier.

This is an estimated debt on the balance sheet showing the amount of pensions that are to be paid out to current and future recipients. Although it is not a debt that the government currently borrows against, when the payment faces a shortage, it will need to be covered by taxpayers’ money. This amount increased 92.7 trillion won last year from 2015 to 752.6 trillion won.

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