Posted February. 25, 2015 07:49,
The central governments debt has reached 507 trillion won (approx. 454.77 billion U.S. dollars) at the end of January, setting a new record high. Such a record-high national debt is attributable to the increasing government spending mostly centered on welfare programs, including free school meal, free childcare and basic pension, while the tax revenue has dropped far below the original target due to sluggish economy. Last year, there was the biggest-ever gap in the tax revenue since the national tax income decreased by 11 trillion won (98.94 billion dollars) compared to the original plan set by the government. As the government tries to fill the deficit with debts, amid expenditures outgrowing tax revenues, the issued amount of state bonds has been increased.
The amount of national bonds at 420 trillion won (377.77 billion dollars) in December 2012, right before inauguration of President Park Geun-hye, has increased by 87 trillion won (78.25 billion dollars) over the past two years. The issued amount of national bonds kept increasing from 89 trillion won *80.25 billion dollars) in 2012 to 100 trillion won (89.94 billion dollars) in 2013, to 112 trillion won (107.73 billion dollars) in 2014. Concerns are growing that Koreas national finance structure is resembling the "finance cliff" that Japan suffered from in the 1990s. It is worrisome as to whether the government keeps filling the financial deficit with debts by issuing more national bonds due to the long-term economic downturn, graying society and low tax burden ratio like in Japan.
Regardless whether it is an individual or a nation, if expenditures outpace incomes, it is common sense to reduce spending. Especially right after the child abuse incident at a nursing home came to light, welfare and financial experts urged the government to revise the universal welfare plan including the free childcare program. However, the current administration that made a pledge to expand "welfare without tax increase" doesnt seem to have a thought to revise the welfare program. The meeting of senior presidential secretaries presided by President Park, which was held at the presidential office on Sunday, established 24 reform tasks to be proceeded this year. But it is hard to understand that countermeasures for welfare restructuring and national budget deficit management were not included in the list of tasks. If revising the free childcare system to exclude children from the top 30 percent income bracket, 3 trillion won (2,70 billion dollars) will be saved. When excluding beneficiaries of the top 30 percent or 50 percent income bracket from the free school meal program or basic pension system, it will save 7 trillion won (6.3 billion dollars) to 12 trillion won (10.8 billion dollars).
As the government wishes, recovery of the domestic economy would naturally boost revenues from corporate tax, income tax and value added tax. However, it would not be easily achieved in practical terms. If the government keeps pursuing the "universal welfare system that burns up taxpayers money" under the excuse of free welfare for all, it would hard to escape from snowballing national debts, worsening deficit, and downgrade of the sovereign credit rating due to reckless issuance of the national bonds.
Without breaking up with the welfare populism that does harm to the nations economy, increasing the issued amount of national bonds is a crime to pass astronomical burden to the future generation. Before it is too late, the president, the government, ruling and opposition parties need to see the cold reality of the national finance. The stakeholders must start discussions to revise the "tax-guzzling welfare system" by converting the universal welfare to the selective welfare.