Korea's debt hits 1,000 trillion won despite record revenues

Finance Minister Choo Kyung-ho talks about the national debt at the government complex in Sejong on August 2022. [YONHAP]

Korea's national debt broke 1,000 trillion won ($758 billion) for the first time last year despite a jump in tax revenues. The debt is projected to rise further this year — more than 100 million won a minute — on higher spending and as debt reduction takes a back seat.

According to the Ministry of Finance on Sunday, 118.6 trillion won of national tax income was collected in 2021 and 2022. The tax revenue exceeded the budget by 61.3 trillion won in 2021 and by 57.3 trillion won in 2022.

The government expected to collect 282.8 trillion won in tax but raked in 344.1 trillion won in 2021. It expected to collect 338.6 trillion won in 2022 but reaped 395.9 trillion won.

Excess tax revenues were mostly used for government expenditures, such as supplementary budgets, rather than for national debt redemption during the Moon administration and the Yoon Suk Yeol administration.

The Moon administration used 66.7 trillion won and the Yoon administration has so far used 62 trillion won to finance supplementary budgets. This totals 128.7 trillion won, some 10 trillion won more than the total tax income over the same period.

Only 2.2 percent, or 2.6 trillion won, of all tax income, was used to redeem national debt in 2021 and 2022. With administrations spending more money on their projects, paying for the debt fell behind as a priority and it snowballed to 1,067.7 trillion won in 2022.

The national debt in 2018 stood at 680.5 trillion won. It rose 42.7 trillion to 723.2 trillion won in the following year and further climbed to 846.6 trillion won in 2020; to 970.7 trillion won in 2021; and to 1,067.7 trillion won last year.

The debt is expected to rise by 66.7 trillion won this year. This increase is equivalent to 182.7 billion won per day, 7.6 billion won per hour or 130 million won per minute.

The worsening quality is a problem for the mounting debt. The national debt can be broken down into two categories — debt requiring additional financial resources and debt that does not. Examples of the latter case includes foreign currency debt that can be paid with the Foreign Exchange Stabilization Fund and loans that can be paid with the National Housing Fund.

Most of Korea’s national debt falls under the previous case that does not have a response fund or requires more financial sourcing. This type of debt was 63.5 percent of all national debt last year and is expected to reach 64.5 percent in 2026.

This trend will result in higher interest costs. The total amount of interest that government owes for the national debt is projected to be 19.2 trillion won this year, 22.2 trillion won in 2024 and 27.3 trillion won in 2026.

“Impractical financial projects need to be made efficient,” said Kim Woo-cheol, a taxation professor at University of Seoul.

Social consensus-based financial guidelines should be put in place to reduce debt for future generations, added Kim.

BY KIM KI-HWAN [sohn.dongjoo@joongang.co.kr]