Just like what happened last year, the Korean government could again be unable to redeem the principal and interest of public funds, which have been accumulated since the foreign exchange crisis, as planned this year.
The government has already declared that it will increase the financial deficit and national tax burden to pay for welfare and self-reliance in national defense. It raises a concern that the national tax burden could be too heavy considering the increase in interest burden caused by the delay in public funds redemption.
According to a report on a party-government meeting to the National Assembly by the Ministry of Finance and Economy (MOFE), the government could repay merely 250 billion won out of 2.1 trillion won in public funds, which the government had originally planned to pay back in 2004. The MOFE forecasted that the government could not reimburse more than 1.3 trillion won out of the 2.3 trillion won planned this year.
It is said that if the redemption of 1 trillion won in public funds was delayed every year, 50 billion won of yearly interest burden (assuming an interest rate of five percent) could additionally result, adversely affecting the national financial plan and leading to an increase in the national tax burden.
The government reported on public fund liabilities to the National Assembly in September 2002 to make a plan in the general accounting budget to reimburse 2 trillion won (on the basis of present value which rises slightly every year taking into account the price increase rate) every year until 2027 for a period of 25 years. The public funds charged to the government amount to 47 trillion won.
Regarding this, the MOFE announced that it would repay 3 trillion won of principal and interest of public funds (on the basis of present value) from 2006 through 2009, saying, We need to redeem public funds as early as possible, even to reduce the financial burden for an aging society and the unification of North and South.
However, experts voice concerns about the fact that the MOFEs plan cannot be realized without the precondition of a five percent economic growth rate.
Ahead of this, the government and the Uri Party held a meeting on the national financial management plan in 2005 to 2009, from May 9 to May 11, to made an agreement to push forward a measure that stipulated that the financial deficit for controlling economic conditions could flexibly be raised by two percent in comparison to the Gross Domestic Product (GDP), up from the one percent currently allowed, and that the taxation rate should rise to less than 22 percent, up from the present 19.5 percent.
In addition, the government made public its plan to increase welfare and the national defense budget by nine to 10 percent, although the governmental budget would only rise by 6.6 percent yearly.
On the other hand, Lee Han-gu, a Grand National Party lawmaker, pointed out through a paper distributed to the press on May 15 that the Roh Moo-hyun government experienced an increase of 67 trillion won in national liabilities and 47 trillion won in overall financial budget limit, respectively, during the past two years. This is an increasing trend comparing with the five years of the Kim Dae-jung (DJ) government which showed a 77 trillion won national liability increase and a 36 trillion won overall financial budget limit increase, and that considering the sudden rise in the taxation and national liabilities, the current government is not as good as the DJ government.