"No Talk on How to Repay National Debt"... Fiscal Economists Pour Criticism on Government

At the '2020 Jaegyeonghak Joint Academic Conference'

"The government is addicted to debt... will have to pay a heavy price later"
"Expansionary fiscal policy is inevitable... but at least a 5-year plan should be announced in advance"
"Independent fiscal institutions, effective fiscal rules operation, and tax increase discussions are necessary"

From the left, Yeom Myeong-bae, Professor Emeritus at Chungnam National University; Kim Sang-cheol, Professor at Hansei University; Kim Woo-cheol, Professor at University of Seoul; Park No-uk, Senior Research Fellow at Korea Institute of Public Finance.

[Sejong=Asia Economy Reporter Joo Sang-don] Fiscal economists have sharply criticized the government's fiscal policy. Given the unavoidable increase in welfare spending due to low birth rates and aging population, compounded by the COVID-19 pandemic, it is inevitable for the government to pursue expansionary fiscal policy. However, they argue that there is a lack of proper mechanisms to check and control this. Fiscal economists advised that discussions on fiscal reform based on tax increases should begin alongside the need for independent fiscal institutions.

On the 29th, the Korean Association of Fiscal Policy, the Korean Association of Public Finance, and the Korean Local Finance Association jointly held the '2020 Joint Fiscal Science Academic Conference' online.

Yeom Myung-bae, Professor Emeritus at Chungnam National University and a comprehensive discussant, expressed concern over the steep increase in national debt due to expansionary fiscal policy. According to the Ministry of Economy and Finance, this year's national debt, including the 4th supplementary budget, is 846.9 trillion won, with a national debt-to-GDP ratio of 43.9%. Next year, the national debt is expected to rise to 956 trillion won, with a debt ratio of 47.3%. This ratio is projected to increase to 58.6% by 2024. He pointed out, "The current government only talks about 'how to spend' the national money but says nothing about 'how to repay' it," adding, "We need to discuss what to do if the debt cannot be repaid." Professor Kim Sang-chul of Hansei University said, "The government is addicted to debt," and warned, "Since national debt must be repaid by someone someday, if it is not managed now, a heavy price will have to be paid later."

Professor Kim Woo-chul of the University of Seoul emphasized the need to guard against reckless fiscal management. He advised, "Although next year's budget is expanded, there is concern that past reckless fiscal management might be repeated during this expansion period," and added, "The next administration should at least announce fiscal policies for the next five years in advance."

Fiscal economists suggested that for sustainable fiscal management, the establishment of independent fiscal institutions, effective operation of fiscal rules, and the start of tax increase discussions are necessary. Park No-uk, Senior Research Fellow at the Korea Institute of Public Finance, who presented on the topic of 'Fiscal Policy Challenges in the Post-COVID Era,' said, "With the current framework for fiscal policy formulation and operation, it is difficult to secure aggregate fiscal discipline and to establish and implement timely and appropriate countercyclical fiscal policies," adding, "As the space for active fiscal policy has expanded due to prolonged low interest rates, it is necessary to establish a framework for aggregate fiscal management and to ensure the independence and objectivity of countercyclical fiscal policy formulation and implementation."

Specifically, he proposed reviewing ▲ independent fiscal institutions ▲ fiscal rules ▲ improvement of fiscal risk management frameworks as tasks. Park explained, "The fiscal management framework largely consists of the production of new information necessary for decision-making, the decision-making process, and explicit rules. To produce objective information necessary for decision-making, independent fiscal institutions are needed," and added, "Since the production of objective information itself may pose a risk of threatening the executive branch or the National Assembly, it is important to secure the expertise and independence of institutions producing such information."

Fiscal economists also viewed the review of fiscal innovation, including tax increases, as urgent. Jeong Seong-ho, Research Fellow at the Fiscal Information Institute, emphasized, "Expansionary fiscal policy is an inevitable measure for the time being, but the government seems indifferent to revenue policy," and stressed, "Considering permanent expenditures from a sustainability perspective, now is the golden time to consider revenue policy."

Professor Kim Jong-ung of Daegu Haany University acknowledged that tax increases are inevitable but stressed that social consensus must precede them. He said, "Korea is experiencing an unprecedented scale of fiscal spending, and considering the social demand for welfare where significant fiscal input will be made, tax increases are necessary," adding, "However, this must be carried out based on social consensus."

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