Former Head of the Korea Institute of Public Finance Criticizes "Moon Administration's Serious National Debt Management"

National Debt Ratio to Increase by 10.5%P in 5 Years
Similar to Financial Crisis... Commitment to Improvement Missing

[Asia Economy Reporter Kim Min-young] Professor Park Hyung-soo of the University of Seoul, who served as the president of the Korea Institute of Public Finance and the head of Statistics Korea, sharply criticized the government’s significantly weakened commitment to managing fiscal soundness. He pointed out that with welfare and other fiscal expenditures increasing, it will be difficult to resolve fiscal deterioration issues if the government continues to rely solely on excess tax revenues and pursues an expansionary fiscal policy.

In a report titled "The Re-counterattack of the National Debt Increase," released on the 10th by the Korea Institute for National Unification, Professor Park stated, "Looking at the trends in changes to the national debt forecasts or management targets in the National Fiscal Management Plan, the government’s commitment to fiscal soundness management has seriously weakened recently compared to before."

Analyzing the government’s National Fiscal Management Plans, Professor Park found that from 2004 to 2016, the national debt ratio either decreased or remained stable toward the latter part of the plan periods. However, in the plans announced between 2017 and 2019, the national debt ratio was shown to increase toward the end of the periods. Especially in the 2019 plan announced last year, the national debt ratio is projected to rise sharply over the next five years. Professor Park emphasized, "According to the government’s plan, the national debt ratio will increase by 10.5 percentage points over the next five years, averaging about 2 percentage points annually, similar to the period of the foreign exchange crisis, yet there is no visible government plan to manage national debt or restore fiscal soundness."

According to the Ministry of Economy and Finance’s January issue of Monthly Fiscal Trends, the national debt increased by 6 trillion won from the previous month to 704.5 trillion won, surpassing 700 trillion won for the first time in history. The revised 2020 budget and fund operation plan project that by the end of 2020, the national debt will reach 805.2 trillion won, accounting for 39.8% of the Gross Domestic Product (GDP), marking the largest scale since the establishment of the government.

He also pointed out that the current pattern of fiscal deterioration differs from the past. Previous fiscal deteriorations caused by economic crises such as the International Monetary Fund (IMF) foreign exchange crisis or the global financial crisis were due to temporary revenue declines and temporary expenditure increases for economic stimulus. At that time, fiscal deterioration could be resolved by revenue recovery through economic rebound or normalization of expenditures. However, the current fiscal deterioration is caused not by an economic crisis but by deliberate fiscal policies of the government, making continuous fiscal deterioration highly likely.

Professor Park expressed concern that unless the government changes its current fiscal policy stance, the fiscal deterioration problem will not be resolved. He proposed, "The Special Act on Fiscal Soundness should be reintroduced to set limits on fiscal deficits and national debt," and added, "For bills that increase fiscal expenditures or are expected to reduce revenues, a pay-as-you-go (paygo) principle mandating resource procurement bills should be legislated."

He also emphasized that instead of relaxing tax increase policies relying solely on excess tax revenues, efforts to expand revenues should be pursued in line with the international tax policy trend of 'broad tax base, low tax rate.' He said, "Compared to OECD countries, the share of tax revenues from income tax and consumption-related taxes is significantly low, so these should be primarily increased, while corporate tax and inheritance and gift tax burdens should be somewhat reduced to avoid undermining the vitality of our economy."

This content was produced with the assistance of AI translation services.