The voters must judge populism
The author is a professor of business administration at Incheon National University and president of the Korean Taxpayers Union.
Presidential candidates are presenting an endless series of hefty promises in their campaigns for the March 9 election. Most of their pledges call for a budget far exceeding the 333-trillion-won ($279.3 billion) tax revenue expected this year if they are to be implemented. And yet, no candidate has come up with exactly how to fund their promises. At first glance, their pledges could look like sweet gifts from Santa Clause, but they will soon return as an unstoppable increase in tax.
Korea’s national debt is expected to swell by 108 trillion won, which accounts for nearly a third of the government’s annual tax revenue. As most of the budget is covered by issuing government bonds, the fiscal deficit has reached alarming levels. Nevertheless, the ruling Democratic Party (DP) on Monday railroaded a 16.9-trillion-won supplementary budget bill through the National Assembly for the sake of helping the self-employed and mom-and-pop store owners struggling with the Covid-19 pandemic.
While presidential candidates are promising to spend more regardless of their political affiliations, President Moon Jae-in and the DP only help fuel fiscal danger by welcoming such a spending splurge. They don’t care if 10 trillion won was already earmarked to help the struggling self-employed. The latest supplementary budget cannot but be seen as a populist move ahead of the March presidential election.
The Moon administration has expanded the budget by eight percent to nine percent each year since 2017. The growth rates far surpassed our GDP growth. Spending outpacing tax revenue is nothing but an attempt to hand down fiscal burden to the next generation. The excess tax revenue the government raked in last year was merely an abnormal phenomenon resulting from soaring real estate prices after a series of botched property policies initiated by the government.
The liberal administration’s budget for 2017 stood at 400 trillion won, but it went up to 607 trillion won this year, a whopping 51 percent increase in just five years. During the same period, the national tax take rose by 68 trillion won — a paltry 25 percent increase — but national debt sharply grew by 61 percent (404 trillion won). Yet presidential candidates are busy parroting expansionary fiscal policies without mentioning how to fund them. That squarely goes against the global tide of pulling back lush liquidity.
No country has ever achieved economic development through a state-led economy based on tax collection. Given the undeniable significance of cutting-edge technologies and new industries in determining national competitiveness in the 21st century, what we need is an economy led by the private sector, not the public sector.
If a leader can advance the national economy and welfare by only changing tax code, all countries will prosper. But that’s impossible. Yet the Korean government resorted to punitive taxes on real estate — a 13.2 percent increase in acquisition tax, an 82.5 percent hike in capital gains tax and a 7.2 percent surge in comprehensive property ownership tax, to name just a few — to help control skyrocketing apartment prices after totally dismissing the law of supply and demand. Presidential candidates promising to embark on large-scale civil engineering projects like construction of an airport also bodes ill for the fiscal integrity of the country. An effective means to prevent such irrational tax policies and unfettered campaign promises is urgently demanded.
What matters is establishing strict fiscal guidelines. Most OECD member nations are employing stringent rules for their fiscal health. A case in point is Germany, which preemptively blocks a tax-led economy from emerging after strictly restricting government expenditures to less than 0.35 percent of its GDP from 2023.
We must revise the Public Official Election Act so that presidential aspirants must present effective ways to fund their campaign promises to the National Election Commission before announcing them. They can refer to a revision to the National Assembly Act, which made it obligatory for lawmakers to make clear how to finance any revisions of laws if additional budget is needed.
Strangely, all presidential candidates in the upcoming election support a state-led economy based on tax revenue. If they lose a chance to correct that wrong path, the fiscal health of the government will most likely face a crisis in a country suffering ultra-low birthrates and superfast aging. Taxation and tax revenue without respecting taxpayer rights are not sustainable. With the country at a crossroads, the voters must judge politicians in this election.
Translation by the Korea JoongAng Daily staff.