Serious fiscal addiction“We must fight against welfare populism just like the 300 Greek warriors safeguarded the gorge of Thermopylae against the invasion of Persia,” said former Finance Minister Bahk Jae-wan when he took office in June 2011 in the Lee Myung-bak administration. At the time, Europe’s fiscal crisis was hurting the global economy and Korea faced a general election the following year. Political circles demanded massive spending from the government. Bahk refused. As a result, the share of Korea’s national debt against its GDP rose by a small margin — from 30.3 percent in 2011 to 30.8 percent the following year. Bahk’s iron conviction helped Korea maintain its fiscal integrity.
Fast forward a few years. Hong Nam-ki, deputy prime minister for the economy and finance minister, immediately succumbed to President Moon Jae-in when he challenged the idea of Korea’s debt never going above 40 percent of the GDP. Hong drew up a super-sized budget for next year amounting to 513.5 trillion won ($441.7 billion), a significant 9.3 percent increase compared to this year. To make up for fiscal losses, the government plans to issue national bonds worth more than 60 trillion won next year.
The administration’s fiscal obsession has reached a serious level. Presidential spokeswoman Ko Min-jung said, “If you only stack up grains in a barn, they get rotten.” But Korea is not stacking up money – it’s racking up debt. Last year’s national debt of 681 trillion won is expected to snowball to 1,061 trillion won in 2023.
The Korean economy is sinking fast as seen in the myriad of warnings that its growth rate will plunge to the 1 percent range this year and next. To help the economy rebound, some fiscal expansion is required. Yet the money should be spent as efficiently as possible. For instance, a fiscal stimulus should aim to foster new industries to reinforce our existing growth engines, as well as to find items that can maximize the effect of fiscal inputs over the short term.
But next year’s budget seems far from efficient. For instance, the budget to create jobs has increased to 26 trillion won — up 21 percent compared to this year — despite its obvious ineffectiveness. Most of the money is actually spent to counteract the effects of the government’s disastrous so-called income-led growth policy. Its cash handouts amount to 54 trillion won — probably intended to get more votes in next year’s general election.
If our national debt soars, it cannot help revive the economy. The National Assembly must carefully deliberate on the government’s budget proposal. We hope our lawmakers do not renege on their obligation to keep a close watch on government spending.