Stop the spendingThe Korean economy is headed into uncharted territory, as epitomized by next year’s gargantuan budget of 555.8 trillion won ($469.8 billion), up 8.5 percentage points compared to this year. The mammoth budget passed a cabinet meeting Tuesday. As it is not easy to understand how big a budget is, one can just compare it to the value of the Seoul-Busan Expressway, which stood at 12.2 trillion won last year. That means the government’s budget for 2021 is gigantic enough to build over 45 Seoul-Busan highways.
The problem is that most of the budget will be spent on one-time expenditures without any contribution to the advancement of the economy. Welfare budgets aimed at promoting public health and curbing unemployment will reach a whopping 200 trillion won next year. It would be much better if the money was spent taking care of the vulnerable class, overcoming our alarmingly low birthrate and creating jobs for the elderly. But the Moon Jae-in administration wants to spend money on creating 1.03 million public jobs — a 10 percent increase from this year — for senior citizens.
The government is putting 21.3 trillion won into so-called Korean New Deal projects to help foster digital and green economies along with ratcheting up our social safety net. The colossal projects are already under fire for being replicas of earlier government projects. Besides, the projects have a plethora of loopholes and some are just plain wacky- sounding. These are far from what the Moon administration touted as “projects to secure a growth engine for the economy in the mid-to-long term.”
Inefficient budget planning primarily stems from policymakers’ habit of addressing policy mistakes with quick fixes and their inclination to spend assigned budgets first — two classic examples of moral hazard in officialdom. As a result of the government’s antimarket and anticorporate policies — as manifested by rapid hikes in the minimum wage, the income-led growth policy and a drastic cut in the workweek to 52 hours — the socially weak only lost jobs and the income gap with the rich got wider.
Therefore, the government poured an astronomical amount of money — over 100 trillion won — in creating jobs over the last four years and even replaced the head of Statistics Korea to shift its calculation standards. Yet the Moon administration failed to create jobs for people in their 30s and 40s, the core of our economy. It has been mostly engrossed with presenting favorable job data for as long as it can. The government spent 13 trillion won for emergency disaster grants to the people to stimulate the economy, but its effect vanished soon. (The government says developed nations are also spending money prodigiously as if in wartime.)
But due to the government’s fiscal profligacy and failure to find a new growth engine, Korea’s debt-to-GDP ratio has exceeded 40 percent. That will rise to 46.7 percent when taking into account issuing national bonds worth 90 trillion won next year. That will push our national debt to 1,000 trillion won soon, which will help lower our sovereign credit rating. The government must stop squandering money and focus on strengthening our economic fundamentals. That’s the only way to avert a vicious cycle of fiscal deterioration.