Realistic financePresident Moon Jae-in chaired a public finance strategic meeting at the government complex in Sejong. He has the duty to examine national coffers and the integrity of national finance.
He must be fully aware of the national balance for wise tax spending. He defined the guideline for public finance.
“The budget must increase to finance an innovative and inclusive nation. Such a spending plan in the long run will help fuel growth potential and lead to increased tax revenue,” he said.
He suggested fiscal expansion must target long-lasting goals.
But the spending so far has hardly been that way. Moon argued for a “stronger public finance role” to boost employment and social security. The budget has been record-sized under the Moon Jae-in administration over the last two years. Still, most spending on jobs went to temporary work for retirees. Social work for trash picking and watching the traffic in school zones pays elderly workers a pitiful amount.
The government is also aware of the limitations. The Ministry of Employment and Labor promised to come up with measures after admitting that just 16.8 percent of 814,000 public hires last month found jobs in the private sector. The budgetary waste is more serious among local governments and public enterprises. Despite colossal spending to increase births, the fertility rate falls deeper into the zero territory.
The tax burden rate, or ratio of taxation against national income, hit 21 percent last year. The government is liberal with fiscal spending. On top of the supersized budget of 470 trillion won ($394 billion) for 2019, the government proposes a supplementary budget of 6.7 trillion won.
It has been seeking an extraordinary budget for three years in a row. The International Monetary Fund (IMF) has advised that there is still room for fiscal expansion in the case of Korea, but that does not justify reckless spending. It recommends increased spending to bolster growth potential to avoid a structural slowdown. Yet the spending plans have been invested for future growth.
Tax collection has been slow so far this year due to deterioration in corporate and individual income. Individual income has been stagnant, while the combined operating profit of the top 30 companies was halved from a year ago in the first quarter. A decline in earnings also reduces tax revenue.
It is a dangerous self-delusion to rely on public finance. In 10 years, Korea’s working population will thin sharply while those on welfare will surge. Public finance must be structured with far-sighted regard for demographic factors and a slow-moving economy.
JoongAng Ilbo, May 17, Page 30