Not doing what the opposition leader wants

Suh Kyoung-ho
The author is an editorial writer of the JoongAng Ilbo.

Deputy Prime Minister for Economic Affairs Choo Kyung-ho, who also serves as finance minister, has refused the request for a supplementary budget. Could the government skip the extraordinary budget this year after drawing it up every year since 2015? I thought it will not be that easy. Former government officials with expertise in budget affairs also shared my view.

There are several reasons why the finance minister drew the line on a supplementary budget. First of all, he learned a lesson from the past. His predecessors often said that they would not use a supplementary budget, but eventually surrendered due to the growing demand from political circles. When finance ministers said they would not resort to a supplementary budget to help the economy, they often attached a condition — “for now.” They surely would have needed an excuse for changing course. Come to think of it, Choo used the phrase “for now” more often than not when he talked about the need for a supplementary budget.

The prospect of this year’s growth falling to the mid-one percent range also raises the possibility of fiscal stimuli. The Bank of Korea lowered its projection of this year’s growth rate to 1.4 percent, lower than the 1.5 percent forecast by the Korea Development Institute and the International Monetary Fund. Expectations are high that the government also will lower this year’s growth rate by 0.1 to 0.2 percentage points from the previous 1.6 percent in its economic policy direction for the second half which will be announced early next month.

Will the Yoon Suk Yeol administration and his People Power Party be able to withstand such poor economic performance ahead of the parliamentary elections next April? As expected, the stock market bets on the government’ use of a supplementary budget despite Choo’s reiteration that he would not draw up such a bill.

Deputy Prime Minister for Economic Affairs Choo Kyung-ho, left, who also serves as finance minister, talks with Bank of Korea Governor Rhee Chang-yong before answering questions from lawmakers at a meeting of the Strategy and Finance Committee of the National Assembly, May 22. [NEWS1]

The conservative government emphasizes fiscal integrity. It will be certainly better than the liberal Moon Jae-in administration. The Moon administration unwaveringly held on to a supplementary budget each year. As a result, the national debt soared by a whopping 400 trillion won ($306 billion) during his five-year term.

Though not comparable to the fixated supplementary budget in the liberal administration, the Yoon administration also drew up a supplementary budget of 62 trillion won — the largest ever — to support small businesses shortly after President Yoon took office. Couldn’t the conservative government have saved more? A high-ranking official from the Ministry of Economy and Finance, who was familiar with the situation at the time, said, “As the supplementary budget was Yoon’s campaign promise in the presidential election, the transition committee had no other choice.” Even the current government stressing fiscal health can’t do much if it gets swept away by the wind of elections. Only the relative issue of who spends less or more remains.

Another factor is the biggest-ever decline in tax revenue. National tax collected from January to April was 34 trillion won less than that of the same period last year. Even if tax revenue remains in the same level as last year until December, the government will be 38.5 trillion won short of this year’s target at 400.5 trillion won. This is unprecedented.

Over the past 20 years, tax revenues were short on nine occasions. In six cases, the government made up for the shortages by mostly issuing national bonds. In a year when economy was in serious depression, it had no other choice. This time, the Yoon administration is expected to use options such as “saving the allocated budget, using government funds, and resorting to the central bank’s surplus funds.”

If the government tightens its belt, it can save money and minimize the increase in national debt. But if the government closes its wallet in recession, it can be attacked for not performing its due role to stabilize the economy. If the government decides not to use the budget already approved by the legislature, it must confront the criticism that it is arbitrarily spending the money.

Nevertheless, the Yoon administration’s will to run the government without a supplementary budget is surprisingly strong. The biggest reason seems to be Democratic Party Chairman Lee Jae-myeong, who insists on drawing up a 35-trillion-won supplementary budget for people’s livelihood. But the problem here is that the moment a discussion starts on a supplementary budget bill in the legislature, the government should negotiate with Lee’s party on the plan. The conservative government clearly wants to avoid it at all cost. Instead, it wants to save the available resources as much as possible. That’s understandable. If the government skips a supplementary budget for the first time in eight years, is it thanks to the opposition leader? What an irony it is.