Lack of fiscal philosophy

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Lack of fiscal philosophy

The author is an economic policy reporter at the JoongAng Ilbo.



“State finance needs to be used when necessary. The point is where it is used. Now, I don’t see the rules that determine this,” said former deputy prime minister for the economy Jin Nyum at a fiscal health forum in Seoul on Dec. 21. The fault of the Moon Jae-in administration, he pointed out, could be confirmed as I investigate the discord between bureaucrat-turned-YouTuber Shin Jae-min and the Ministry of Economy and Finance. I had a chance to think about how the government approaches fiscal policies.

The Ministry of Economy and Finance denied Shin’s claims that the Blue House attempted to force the ministry to issue deficit-financing bonds and manipulate the national debt-to-GDP ratio in order to make the former Park Geun-hye administration look bad. The ministry based the denial on its argument that even if the government issued 4 trillion-won ($3.56 billion) bonds, it would only add 0.2 percent to the national debt-to-GDP ratio. The ministry also claimed that it did not issue additional bonds and that the presidential office’s suggestion was not coercive.

But questions remain about whether a 0.2 percent increase in the debt-to-GDP ratio is really insignificant and if it is OK as bonds were not issued in the end. Aside from these issues, financial experts focus on a more fundamental question: it is a lack of fiscal management philosophy at the Blue House. Experts believe that it must have been difficult for Finance Ministry officials to refuse the suggestion from the Blue House. Prof. Ock Dong-seok of Incheon University said that it is common sense to manage finance, not to increase debt, as it could add additional tax burdens to the citizens. I am worried that the government treats debt too lightly.

What would have happened if the Finance Ministry officials really accepted the Blue House’s suggestion in late 2017? As the ministry explained, its impact on the debt-to-GDP ratio might have been negligible. But I think the opportunistic fiscal management to get debts for a short-term market boost and populist welfare programs might have further prevailed.

If you want to spend more, but earning is limited, you would have to go into debt— that applies to households and nations alike. As debts can add tax burdens to future generations, it is better to reduce it if possible. I think what Shin really wanted to say was that the government was far from being frugal.

JoongAng Ilbo, Jan. 3, Page 29
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