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Budget Deficit Snowballs to 35 Trillion Won

Posted August. 24, 2007 07:29,   


The adjusted fiscal balance, which indicates the overall state of government finances, is expected to reach a deficit of 13.6 trillion won this year.

The fiscal deficit of the Roh Moo-hyun administration, whose five-year term virtually draws to an end around the end of this year, is expected to grow to a total of 35.5 trillion won, reflecting the nation`s worsening fiscal condition.

The Ministry of Finance and Economy announced on Thursday that the adjusted fiscal balance in the first half of the year was tallied at 22.571 trillion won.

“The fiscal deficit increased as the government frontloaded its budget spending more than usual in the first half of 2007,” said Kim Hyeong-soo, a senior official of the Ministry. “However, the situation will be better to some extent in the latter half of the year.”

This year’s fiscal deficit is expected to reach 13.6 trillion, the biggest ever since 1999 when a deficit of 20.4 trillion won was incurred. Although the Roh administration had a surplus of 1 trillion won in its first year of office (2003), the fiscal deficit has widened each year since then, slipping into a deficit of 4 trillion won in 2004, 8.1 trillion won in 2005 and 10.8 trillion won in 2006.

Given that tax revenue is forecast to decrease by 3.5 trillion won over the next six years – due to tax cuts announced on Wednesday, and new welfare policies, such as the universal basic pension system which will be implemented from next year – the fiscal deficit will likely continue even from 2008.

Private experts point out that the government`s worsening financial condition will not only increase the citizens’ tax burden but also the national debt.

They claim that the incumbent administration has been seriously harming the fiscal health of the government by launching an excessive number of national projects and failing to streamline the public sector. They also say that the government should immediately take drastic measures, such as the reduction of its spending or the size of the government, in order to improve its financial condition.

A financial report that the OECD (Organization for Economic Cooperation and Development) announced in June recommended the Korean government restrain its spending and reform its tax system in order to achieve a balanced budget in the mid-term.

higgledy@donga.com jarrett@donga.com