[Editorial] Government Needs to Hold Line in National War on Debt

The first line of defense in the national war on debt has been broken in just four months. And the National Assembly Budget Office warned that its line would be even more vulnerable if the government continues to spend as it does now.

The government pledged in a tentative financial management plan in May that it would keep its national debt ratio under 30 percent until 2009, given this year’s national debt ratio is 28.9 percent of GDP. But in the final financial management plan released in September, the government gave up its 30 percent defense line by revising the estimated national debt ratio upwards to higher than 30 percent for the next five years, including 30.4 percent this year and 31.9 percent next year.

The government explained, “The national debt can grow in line with changes in the environment, including the economic growth rate, and projected tax revenue.” This implies that the national debt will be allowed to increase to whatever extent necessary if the national growth rate remains lower than expectations and government spending keeps going up.

Indeed, the defense line was broken this time mainly because of the tax revenue shortfall, as the national growth rate forecast was revised downward from higher than 5.0 percent to 3.8 percent in only four months. In this case, it is common sense for the government to cut down on its spending to maintain a national debt ratio of less than 30 percent.

But the government has been spending more and more, while neglecting the need to strengthen the growth potential of the private sector, thus undermining its ability to pay taxes. The result is snowballing national debt. The national debt is estimated to surge to 248 trillion won this year and 280 trillion won next year, from 133 trillion won at the end of 2002. The growing national debt is not only hurting the nation’s financial health but is also weakening the private sector, thus resulting in an even more sluggish domestic market. Koreans face a harsh reality. They are suffering growing burdens while income remains flat. The nation is stuck in a vicious economic cycle.

The National Assembly Budget Office cautioned that public spending is likely to exceed current estimates to meet demand in areas of welfare, South-North cooperation, and disaster response. It pointed out that the government balance would be in worse shape and the national debt would grow unless the government acts now to overhaul its spending structure.

The government is required to rein itself in. It should hold the line in the national debt war by reducing public spending, which taxpayers can’t afford. Now is the time for it to make a bold decision to transform itself into a small government and reduce national projects. It should focus all its energy on strengthening the growth potential of the private sector.