Public spending is out of controlKorea’s national debt has finally passed the 1,500 trillion won ($1.4 trillion) milestone. According to settlements for the 2017 fiscal year, the debt increased 122 trillion won to 1,555 trillion won from 2016. Debt used to pay for the pension plans of retired government employees and members of the military reached 845 trillion won, more than half of the national debt.
Despite the yawning deficit, the government’s budget guidelines for next year are loose. It is thinking of raising spending by 5.7 percent from this year’s record-high 429 trillion won. Spending could top 450 trillion won next year. The government argues that increasing spending is necessary to increase jobs and address the country’s demographic challenges.
But the government must study the effectiveness of its spending policy. It must reconsider the plan to subsidize each young employee hired by small and mid-sized companies, as that is not a lasting solution for youth joblessness. The state subsidy for employers to ease the burden of the minimum wage increase is also a temporary fix. It also should revisit its programs to promote childbirth, as the fertility rate has not gotten any better despite billions of dollars in spending. Without a fundamental approach that will create a better environment for businesses and gender equality, government spending is just going down the drain.
The government has been reckless with its welfare programs. After the Moon Jae-in administration took power last year, it widened public insurance coverage for subscribers and their family members, raised the basic cash allowance for the elderly and poor and began distributing cash for childcare. Each program cost billions of won. The government also raised the monthly pay for conscripts, hired more public employees and offered monthly subsidies for employers following the hike in the minimum wage. Spending inevitably has to grow to combat unemployment, the low birthrate and inequality in society. But much of the spending was pointless because it had vague goals.
Welfare spending in this year’s budget grew at the fastest pace at 12.9 percent. This year’s rate of increase may be even higher. If public finances are depleted, there won’t be any money left for future welfare. Korea’s national debts hover at around 40 percent of its gross domestic product. That level will increase when tax revenue falls due to the country’s thinning working population. The government must draw up a long-term strategy to secure its financial health. The government must keep itself in check so it does not hand down heavy debts to future generations.
JoongAng Ilbo, March 27, Page 30