[Viewpoint] Fiscal Expansion Must Not Undermine the Economic Will of the Youth

According to the '2020~25 National Fiscal Management Plan' recently announced by the Ministry of Economy and Finance, South Korea's national debt-to-GDP ratio is expected to increase by 3-4 percentage points annually from 43.9% this year (including supplementary budgets) to 58.3% in 2024. In terms of amount, the national debt currently stands at 846.9 trillion won, an increase of 118.1 trillion won since the end of last year, and it is projected that the national debt will have increased by a total of 417.6 trillion won during the Moon Jae-in administration. This is 151.4 trillion won more than the net increase in national debt of 266.2 trillion won under the Kim Dae-jung administration (85.4 trillion won) and the Lee Myung-bak administration (180.8 trillion won), which respectively managed the aftermath of the foreign exchange crisis and the global financial crisis.

It is concerning that the implicit ceiling (based on a 40% national debt ratio) suddenly disappeared from policymakers' minds last May, and that this ratio has actually surged. Some argue that the national debt ratio is still low and try to reassure the public. However, the experiences of Ireland and Spain, where this ratio skyrocketed from 25% to 93% and from 36% to 61%, respectively, in just three years (2007?2010) due to the bursting of the real estate bubble, cannot be dismissed as 'different from us.' It is not something to take lightly that our economy, which has entered a low-growth and low-birthrate phase, is on the verge of becoming a super-aged society with a rapidly increasing national debt.

Let us briefly turn our attention to this year's supplementary budgets. The four rounds of supplementary budgets (totaling 66.8 trillion won) mainly focused on employment stability and income security for households, self-employed individuals, and small businesses. However, most of these supplementary budget projects were one-off and symptomatic measures, and especially problematic was the distortion of incentives for the youth. Of course, this is nothing new.

Since the global financial crisis, it has been difficult to evaluate that fiscal expansion aimed at strengthening the social safety net over the past decade has been executed efficiently, effectively, fairly, and systematically, targeting clearly defined recipients.

Consider the employed youth who pay taxes. What if the taxes they diligently pay are used for populist giveaways or excessive handouts to the public or vulnerable groups? The sense of unfairness would dampen their motivation to work. What about young people preparing for employment? They might prefer to maintain their status as job seekers rather than accept unsatisfactory jobs. In fact, there have been reports that some youth jobs created through supplementary budgets are being ignored by young people themselves.

Recent failures in real estate policy have also severely distorted the incentive structure for the youth. The era when diligent "heuksujeo" (working-class youth) could buy their own homes with their hard-earned money seems to be over. Young people, for whom buying a home has become nearly impossible without a windfall due to soaring housing prices, are being pushed into real estate, stock, and auction markets. Can we expect economic vitality in a society that forces diligent youth to focus all their efforts on striking it rich rather than engaging in sound productive activities?

South Korea, a resource-poor country, has only one asset: the people's "will to economize." This term, coined by A. Lewis, a Nobel laureate and professor at Princeton University, refers to the people's motivation to work, diligence, and spirit of challenge. Throughout the latter half of the 20th century, our people built today's prosperity with this "will," dreaming of a better tomorrow. It is worth deeply reflecting on the fact that fiscal expansion over the past decade has been executed in a way that has significantly undermined the economic will of the youth who will bear the future of our economy.

The British weekly magazine The Economist covered the Argentine economy, which completely collapsed after a steady decline throughout the 20th century. The column described Argentina's decline as "(so) gradual that (everyone) sweetly fell into it without resistance." "Even as the country declined, people continued to enjoy delicious coffee and bread at cafes in Buenos Aires." Is this just a story about another country?

[Kim Hong-beom, Professor of Economics, Gyeongsang National University]

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