Hey big spenders!Deputy Prime Minister and Finance Minister Hong Nam-ki announced Wednesday a bold government plan to increase public entities’ investments to 55 trillion won ($45.6 billion) this year by advancing their spending of 1 trillion won earmarked for next year to the second half of this year. After the announcement, market watchers showed a cynical reaction wondering if the liberal administration once again was attempting to make up for its policy failures with taxpayers’ money. The measure is aimed at reinforcing infrastructure through public corporations — instead of indiscriminately handing out cash to poor people.
Such negative responses prevail whenever the Moon Jae-in administration resorts to fiscal stimuli to put our economy back on track. Their concerns are well-grounded because various macroeconomic indicators show our economy stuck at the worst level since the government began to collect related data.
In a number of surveys of President Moon Jae-in’s performance as head of state, negative responses overwhelmed positive ones partly thanks to his relentless push for the appointment of controversial justice minister nominee Cho Kuk. But a recent Gallup Korea poll shows that his lack of ability to tackle economic challenges played a bigger part in the approval ratings than his flips on appointing senior government officials. In fact, the share of the median income group has dropped below 60 percent for the first time in a decade following a noticeable decrease in disposable income of the bottom 20 percent for six consecutive months.
Not only the poor class but also the middle class — the backbone of the economy — have more trouble making ends meet despite the government’s cash payouts to the underprivileged. Somewhat revived domestic consumption, which the government and ruling Democratic Party have been bragging about, also dived for two months in a row. On top of that, the first-ever negative growth in the consumer price index is fanning worries about the possibility of deflation.
If the economy enters deflation, it could lead to a recession like Japan’s “lost decades.” The government must prevent that by using all possible policy means. And yet markets are worried about the government’s ever-expansive budget amounting to 513 trillion won next year. They cast doubts over whether the government is spending money to win votes in next years’ general election instead of trying to ratchet up growth. The clock is ticking. The budget must help raise economic growth.
JoongAng Ilbo, Sept. 5, Page 30