Fiscal integrity neededThe Ministry of Strategy and Finance and the ruling Democratic Party (DP) held a closed-door meeting Tuesday to discuss next year’s budget, which may be up to 530 trillion won ($436.7 billion). At a cabinet meeting on the same day, President Moon Jae-in stressed the need to “show the government’s determination to revitalize our economy through fiscal expansion.” In theory, it is right for the government to stimulate the economy by spending more when the economy sags.
But the problem is our soaring national debt. If next year’s budget exceeds 510 trillion won, the government’s annual spending will break the ceiling of 500 trillion won in just three years after it surpassed 400 trillion. It also means a whopping 100 trillion won increase in just three years since the launch of the Moon administration. During the eight years of the previous conservative administrations, the government budget increased by 130 trillion won.
Our governments have faithfully kept to the principle of maintaining government debt under 40 percent of gross domestic product (GDP). But Moon and his ruling party are asking, “What is the basis for the 40 percent limit?” They cite a number of developed countries whose debt-to-GDP ratio is 100 percent. The difference is that they are mostly key currency countries.
Some officials and lawmakers point out that Japan’s debt-to-GDP ratio nears 250 percent. But Japan is not only one of the largest creditor nations, but more than 95 percent of its debts are owned by Japanese. In other words, there are few risks. How about Greece and Argentina? Thanks to their hefty spending on welfare programs, it took only 10 years for Greece’s debt-to-GDP ratio to soar to 100 percent from 40 percent.
We can hardly afford a superbudget as seen in the 59 trillion won government deficit in the first half of the year, the largest since such data started being collected. In the meantime, the government’s tax revenues shrank by 1 trillion won over a year. Under such circumstances, the government can spend more to revive the economy as recommended by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD). But they attach particular strings to the fiscal stimuli — raising our growth potential and rejuvenating the economy through structural reform. The government is going in the opposite direction. Welfare spending accounts for 34.3 percent of this year’s 470 trillion won budget, probably aimed at winning favor from voters ahead of next year’s general election. If such a spending spree continues, the country can hardly avoid a fiscal crisis. Excessive spending regardless of fiscal integrity only kicks the burden down to our next generation.
JoongAng Ilbo, Aug. 15, Page 26