Expansionary fiscal policy throughout the term... 1000 trillion debt burden from the start of the next government

Massive Financial Investment in Slogan Projects like 'Human New Deal'
Experts: "Next Government to Restructure Slogan Projects"
National Debt Increased from 660 Trillion in 2017 to 964 Trillion This Year
Misaligned Revenue Forecasts Also a Problem

[Asia Economy Reporter Jang Sehee] The possibility of the government budget exceeding 600 trillion won for the first time in history has increased due to the response to the COVID-19 crisis. As the support targets and scale for vulnerable groups such as self-employed people have expanded, fiscal spending has inevitably increased. However, the larger the spending, the greater the likelihood of deterioration in fiscal soundness.

◆Welfare sector and New Deal slogan projects expected to increase significantly= About one-third of the budget is expected to be allocated to the welfare sector. According to the Ministry of Economy and Finance on the 9th, next year's welfare budget is expected to exceed 200 trillion won. The Moon Jae-in administration has been steadily increasing welfare benefits such as the Earned Income Tax Credit (EITC), nationwide employment insurance promotion, and job support for vulnerable groups. In particular, the growth rate of welfare and job budgets nearly doubled from 4.9% in 2017 to 10.7% this year. On the other hand, this year's education budget decreased by 2.2% compared to the previous year. Professor Kim Taegi of Dankook University’s Department of Economics emphasized, "The welfare budget accounts for about one-third of the total budget, but there has been excessive spending. It is necessary to integrate unnecessary similar projects linked to job programs."

The government also plans to include projects aimed at achieving the results of the Korean New Deal 2.0 in the research and development (R&D) sector. Last year, large budgets were invested in New Deal projects such as Data Dam, Green Remodeling, and Green Smart Schools. Professor Kim said, "It is problematic to invest a large budget in slogan-based projects like the Korean New Deal," adding, "When the next government takes office, restructuring will begin starting with the Moon Jae-in administration's slogan projects."

◆President Moon: "Expansionary fiscal policy is necessary"... Fiscal rules remain stalled= Excessive welfare budgets negatively affect fiscal soundness. Although slogan projects such as the Korean New Deal have been promoted under the current administration, they have not significantly contributed to economic growth. The government previously planned to invest a total of 220 trillion won by 2025 to create 2.5 million jobs through the Korean New Deal 2.0 projects.

Unproductive fiscal spending leads to a national debt burden. According to the Ministry of Economy and Finance, the national debt, which was 660.2 trillion won in 2017, increased to 963.9 trillion won based on this year's second supplementary budget. The national debt-to-GDP ratio stood at 47.2%. Although still lower than major advanced countries, the rapid increase in the debt ratio is a concern for the fiscal authorities at the Ministry of Economy and Finance. President Moon emphasized the role of the budget in an economic wartime situation during last year's budget formulation amid the COVID-19 situation and mentioned the need to continue an expansionary fiscal stance this year as well. With the president directly ordering expansionary fiscal policy, the total expenditure growth rate for next year's budget is expected to be at least 8-9%.

Fiscal rules that can control fiscal spending are still stalled in the National Assembly. The government submitted a revision bill to the National Assembly last November to manage the national debt-to-GDP ratio within 60% and the integrated fiscal balance (total revenue minus total expenditure) deficit ratio within 3%, but discussions have virtually made no progress. So far, the National Assembly has not even held a single public hearing to gather opinions from experts and others.

Within the Democratic Party, it has been confirmed that they refuse to discuss the matter, saying "It is not the time to discuss fiscal rules." The opposition parties also oppose the government's proposed fiscal rules, arguing that stricter principles and standards are needed. The government plans to actively continue discussions during the regular National Assembly session in September, but the prevailing view is that it will be difficult to pass the bill within the current administration's term.

◆Imbalance between budget and total revenue forecasts= The imbalance between the budget and total revenue continues. Every year, excess tax revenue occurs as the government's forecasted estimates at the time of budget formulation differ from actual tax revenue performance. After recording 14.7556 trillion won in 2017 and 26.0545 trillion won in 2018, excess tax revenue of 6.2933 trillion won occurred last year. Due to the rapidly changing economic situation caused by COVID-19, this year's tax revenue estimates are also likely to be off. A government official emphasized, "This year's annual tax revenue depends on the COVID-19 situation. In particular, if social distancing is strengthened, it could lead to a decrease in value-added tax."

If value-added tax, which ranks second among total tax revenues, decreases, the overall tax revenue flow will also be affected. According to national tax statistics, last year, value-added tax collected was 64.9 trillion won, second only to income tax at 98.2 trillion won, while corporate tax collected was 55.5 trillion won.

Lee Sangmin, a research fellow at the Nara Salrim Research Institute, said, "The tax revenue estimation model should be disclosed so that the National Assembly can update variables and conduct reviews according to changes in the economic situation."

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