Safeguard our fiscal healthPresident Moon Jae-in presided over an extraordinary meeting to set the outlines of his administration’s fiscal policies for the next five years. The meeting in the Blue House should have focused on finding ways to save our economy and address the worsening fiscal condition resulting from the government’s over-the-top spending to cope with the coronavirus crisis.
In the meeting on Monday, President Moon accentuated the need to “mobilize all possible fiscal tools as if in wartime.” But he did not mention how to restore our fiscal integrity, except for stressing the need to raise our growth rate to regain fiscal health over the long haul. While citing the need for readjusting budget plans to deal with the repercussions of the pandemic, Moon praised the relative health of our fiscal condition as compared to other developed countries. “The ratio of our national debt against GDP is much lower than the OECD average,” he said.
Moon made similar remarks last year. He raised questions about the requirement of Korea to manage the ratio in the low 40 percent range. “International organizations mostly apply the 60 percent cap,” he retorted. “We can afford an aggressive fiscal input.” His comment eventually led to the unprecedentedly large budget of 512.3 trillion won ($412.5 billion) for this year. Moon’s latest remarks suggest a strong determination to maintain an expansive fiscal policy from next year on.
Given the colossal ramifications of the novel conronavirus, the government must save the economy from collapsing. But if it blindly pushes expansive fiscal policies, it will do damage that will be hard to reverse. Given a plethora of imminent challenges such as an aging population, it is simply not right to believe in a 60 percent ceiling.
Lee Chang-yong, IMF director for Asia and the Pacific, agreed that it is irresponsible for the president to champion the 60 percent limit. Fitch Ratings warned that if Korea’s debt ratio against GDP soars to 46 percent by 2023, it could help downgrade Korea’s credit rating. Bloomberg went a step further. It expected the ratio of Korea to reach 50 percent next year, which could weaken the Korean won. As a result of the government’s persistently expansive fiscal policy, each citizen had to pay over 10 million won for tax and social insurance last year.
National coffers are not a limitless fountain. The government must set up strict fiscal guidelines as soon as possible. Germany was able to achieve the strongest economy in Europe after mandating its new national debt should not exceed 0.35 percent of GDP annually. Italy took a different path. Look what happened. The government must get wiser before it is too late.
JoongAng Ilbo, May 26, Page 30