A dangerous experimentThe future of public finance under President Moon Jae-in’s government raises serious concerns from the proposal for budgetary spending for 2018 laid out by the government on Tuesday. It proposed a 429 trillion won ($381 billion) spending plan, up 7.1 percent from this year’s budget and the biggest since 2009 when the country poured out public funds to fend off shockwaves from the global financial meltdown.
To support Moon’s campaign to change the economic paradigm from growth led by exports and large companies to one pulled by improvements in income and living standards for ordinary people, half of the budget — 210 trillion won — would be spent on upgrading social welfare, education, and labor conditions. In contrast, spending to promote industry, innovations, and social overhead capital, and for building and maintaining public infrastructure, would shrivel. The fiscal role is important to give traction to the slow-motion economy, but the colossal spending could go to waste if it does not aid growth.
But we hear little voice of protest and warning within the government. Moon praised the finance ministry for following orders from their captain as he guides the country into uncharted waters. Eager to please, the crew has come up with a spending plan that far outpaces the estimated 4.5 percent real economic growth rate for next year.
The bulk of fiscal spending goes to increasing state handouts for senior citizens, child care, preschool tuition, insurance coverage, and low-income families. Moon’s government expects spending to prime the pump for growth in consumer spending and domestic demand.
If this theory were doable, the United States, Germany and others would have tried it when a recession threatened their economies following the global financial crisis.
The opposition camp is determined to scrutinize and challenge the government’s all-rosy budgetary spending plan. The People’s Party deems an additional 83 trillion won was left out of the Moon government’s estimation that 178 trillion won of next year’s budget would be needed to advance elements of Moon’s 100-point agenda. Efficacy is important in increases in fiscal spending. There is sufficient room to amend the budget so that it is helpful in increasing hiring and saves extra welfare spending. Public coffers are too valuable to gamble with policy experiments.
JoongAng Ilbo, Aug. 30, Page 30