While the Moon Jae-in administration plans to increase its 2020 budget by 9 percent from that of this year, the National Assembly’s Special Committee on Budget & Accounts has recommended the government to control the speed of its fiscal spending. According to the panel’s 2018 fiscal account settlement report, government debts, including those at the central and regional governments and nonprofit state-funded organizations, increased by an annual average of 11.1 percent between 2001 and 2018, compared with a nominal economic growth rate of 5.8 percent during the same period. The increase rate is the sixth highest among the member nations of the Organisation for Economic Cooperation and Development.
The debt-to-GDP ratio, which refers to the ratio of a country’s public debt to its gross domestic product (GDP), also rose sharply in proportion. South Korea’s debt-to-GDP ratio stands at 40.7 percent, far lower than that of Japan (237.1 percent), the United States (105.8 percent) and France (98.6 percent). Using the fact as a ground for rooms for more fiscal spending, Seoul has been maintaining an expansionary fiscal policy. However, the report said that the government should determine if the South Korean economy can endure the increased fiscal expenditures, rather than resorting to state-to-state comparisons without taking each countries’ economic traits into account.
According to the government’s fiscal operation plan during the period 2018-2022, the deficit in the general government financial balance excluding pension and other social security funds amounted to 28.5 trillion won last year and is forecast to reach 63 trillion won in 2022. This means that the government spends more money than it earns. The deficit is attributable to hikes in mandatory spending, including the newly offered childcare benefits and increased basic pensions for the elderly. In particular, South Korea is aging at the fastest pace in the OECD, while its productive population at ages between 15 and 64 has started to decrease due to a seriously low birth rate. The country’s welfare budget will keep rising even without additional spending.
It is a significant matter that the parliamentary committee, which has the right to conduct final review of the administration’s budgets and settlements, officially warned that the government needs to put its fiscal soundness under control. The panel believes that the fiscal soundness, the last safety pin for the national economy, is being undermined amid growing uncertainties in external economic situations. The government should listen to the warning that it should execute its budget efficiently even if it has to resort to short-term fiscal boosting, while set a goal for the speed and control of the increase in national debts.