[Editorial] Deputy Prime Minister Should Focus on Growth, Not Advanced Countries

Repeating the same old line on the budget, Deputy Prime Minister and Minister of Finance and Economy Han Duck-soo said, “While the size of governmental finance in OECD member countries is 40 percent of GDP, it is just 27 percent of GDP in Korea.” He added, “We have to review the size of government finance to see if it is appropriate when compared to that of advanced countries,” hinting at intentions to raise taxes or increase the government’s debt level.

The reason why Han mentions advanced countries whenever he talks about taxes and the budget is because he wants to emphasize that the government isn’t able to do what it wants to do because it doesn’t have enough financial resources. What he wants to say is that there should be more welfare projects for the distribution of wealth, and that there should be massive public works projects that might require tens of trillions of won. However, it is policies aimed at stimulating growth that are essential for financial expansion. Despite that, he has been neglectful of growth policies.

It is not right for the government to talk about inadequate finance, because it has never come up with policy measures aimed at securing growth engines, while the economy continues to post low-growth rates that hover below potential growth rates. For the past several years, Korea’s growth rates have been at the bottom among major Asian countries.

Although the growth rate slightly rose to 4.4 percent in the third quarter from the two to three percent of the first and second quarters, it still falls far behind not only those of China (9.4 percent) and India (8.0 percent), but also those of our competitors, Hong Kong (8.2 percent) and Singapore (7.0 percent).

Given that the population is rapidly aging and the bipolarization of our society is deepening, there will be an explosion in demand for government finance in the near future, regardless of how much government spending is reduced. In order for the government to meet those financial needs, per capita income should be more than 30,000 dollars.

Presidential Chief of Staff Lee Byung-wan once confidently said, “Show me evidence that Korea is not an advanced country.” However, with a per capita income of less than 20,000 dollars, the government cannot afford to support the kind of welfare that is provided in advanced countries.

If the government blindly expands its finances without getting rid of profligacy and inefficiency in the public sector, it will only end up creating more of a drain on tax revenues. The OECD has also advised the government to recover its financial soundness.

Because of the malfunctioning mechanism of distributing welfare aid, the lives of the poor and the extremely poor will barely get better even if the budget for welfare projects is increased. Deputy Prime Minister Han should stop trying to mimic advanced countries, and should focus on enhancing the efficiency of the existing welfare budget and “make the pie bigger” by employing policies that put growth first.