A lacking supplementary budgetThe government has proposed a third supplementary budget amounting to a record 35.3 trillion won ($29 billion). Although fiscal expansion is necessary in the face of a recession from the Covid-19 fallout, the worsening in fiscal integrity raises alarms. Of the new increase, about 10 trillion won was secured after readjusting existing budgets while the remaining bulk was raised through issuing national bonds.
A near 60-trillion-won stretch to this year’s budget through three emergency increases has pushed national liabilities above 840 trillion won. The government’s debt ratio against the GDP has hit 43.7 percent, passing the 40 percent internally-set Maginot Line on the country’s debt ratio.
All will be well, if the extra spending can serve its original design of accelerating recovery. The scale of supplementary budgets should not be a problem.
But the details suggest that the packaging of the third budget scheme was rushed out instead of thoroughly thought over. The third emergency budget was earmarked to help merchants and businesses, strengthen social security, and implement Korean-style New Deal projects for longer-term growth.
But billions go to purchase discount coupons, gift cards and subsidies for discounts for retailers. We wonder if some of the projects would really help the economy to rebound. Meanwhile, budgeting for corporate investment stopped at 43 billion won. And, although tax incentives for reshoring have been listed, radical initiatives to prop up corporate investment and hiring is lacking.
Although nearly 9 trillion won has been appropriated for job security, most of the money would be spent to subsidize employers for furlough programs or support for specialized professions who lack regular status. Most of the plans to increase jobs would only add temporary hires. Since how long the Covid-19 crisis will continue is uncertain, there will be a limit to sustaining jobs through fiscal spending. In a nutshell, jobs are created by companies, not the government. Incentives like tax cuts should be more decisive to promote hiring.
Hong Nam-ki, deputy prime minister for economic affairs, said national coffers should be “the last resort.” But their role has become oversized through the outbreak of Covid-19. Public money cannot solve everything. Without radical moves to stimulate corporate activity and remove regulations that get in the way of innovation, the colossal public spending could go wasted. To ensure that our tax money is well spent, the inefficient barriers to hamper with corporate activities must be done away first.