Lee·Yoon's Promised 'Generosity' Before It Even Starts... This Year's Fiscal Deficit Forecast Already Surpasses 110 Trillion Won

National Assembly Budget Office "This Year's Managed Fiscal Balance Projected at -110.8 Trillion Won"
Additional Supplementary Budget Likely After Next Government Inauguration... Fiscal Deficit Expansion Inevitable Amid 'Money Injection' Forecast

50,000 won bill.

[Asia Economy Sejong=Reporter Kwon Haeyoung] The government has planned higher "spending (expenditure)" than "earning (revenue)," resulting in this year's national budget deficit forecast already surpassing 100 trillion won. This includes the historic first "Snowflake Supplementary Budget (supplementary budget)" passed by the National Assembly last month. Despite having to manage the budget by incurring enormous "debt (government bonds)," both ruling and opposition presidential candidates have entered a competition of "handout pledges" worth hundreds of trillions of won, raising concerns that this year's fiscal deficit could reach around 150 trillion won.

According to the National Assembly Budget Office on the 5th, with the passage of the supplementary budget worth 16.9 trillion won last month, this year's managed fiscal balance deficit is expected to reach 110.8 trillion won.

The managed fiscal balance is an indicator that excludes the four major social security funds from the "integrated fiscal balance," which is the net revenue minus net expenditure of the central government, providing a clear view of the actual state of the national finances.

Initially, based on the 2022 main budget, the managed fiscal balance was expected to record a deficit of 94.1 trillion won, but with the passage of this supplementary budget, the deficit is projected by the Budget Office to widen to 110.8 trillion won. The integrated fiscal balance deficit is estimated to increase to 70.8 trillion won.

Accordingly, the government's fiscal deficit, based on the managed fiscal balance, is expected to exceed 100 trillion won again after two years, following the first breakthrough of 100 trillion won in 2020 (-112 trillion won). In 2021, the fiscal deficit nearly exceeded 100 trillion won, but due to increased real estate tax revenue from soaring housing prices, an excess tax revenue of about 61 trillion won occurred, reducing the deficit to the 80 trillion won range.

The problem is that both ruling and opposition presidential candidates are proposing "populist pledges" involving large-scale fiscal spending, which could cause the fiscal deficit to balloon like a snowball. Lee Jae-myung, the Democratic Party candidate, plans to spend 300 trillion won to fulfill about 270 pledges, while Yoon Seok-yeol, the People Power Party candidate, intends to invest 266 trillion won to keep about 200 pledges. Regardless of which candidate wins, there is a high possibility of additional supplementary budgets being compiled, with most of the funding expected to be raised through deficit government bonds. There are limits to raising large-scale funds solely by cutting existing budgets, and pursuing tax increases early in the term, which could hurt approval ratings, is also difficult.

Ultimately, the next government is likely to issue a large amount of deficit government bonds, and correspondingly, the fiscal deficit will inevitably grow. National debt is also expected to increase rapidly. Including the first supplementary budget this year, national debt will reach 1,075.7 trillion won, or 50.1% of the Gross Domestic Product (GDP). If one or two more supplementary budgets are enacted this year and deficit government bonds are issued to finance them, this year's fiscal deficit could reach 150 trillion won, and national debt could approach 1,100 trillion won. The International Monetary Fund (IMF) has also forecast that South Korea's national debt will increase at an average annual rate of 5.4% from 2021 to 2026, the fastest growth rate among OECD member countries.

Earlier, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki also emphasized the need for "fiscal normalization" during a meeting with the international credit rating agency Moody's last month. Deputy Prime Minister Hong stated, "While it was inevitable for the fiscal policy to play an active role during the COVID-19 crisis, as our daily lives and economic activities normalize, fiscal normalization must also be achieved. To this end, the government will strive to gradually reduce the total expenditure growth rate, strengthen the revenue base through the adjustment of tax exemptions and reductions, and set and comply with strict fiscal rules."

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