[Interview] Seong Myeongjae, President of the Korean Association of Public Finance, "Issuing Deficit Bonds is 'Exploitation of Future Generations'"

Academia Proposes 'Tax Increase' to Secure Medium- to Long-Term Fiscal Soundness

Sung Myung-jae, President of the Korean Association of Public Finance

[Asia Economy Sejong=Reporter Son Sun-hee] "Once fiscal spending increases, it becomes extremely difficult to control. There will definitely be problems 10 or 20 years from now. Yet, issuing more deficit bonds means the current generation enjoys the benefits while the next generation pays off the debt. It is ‘exploitation’ of future generations."

Seong Myeong-jae, President of the Korean Fiscal Association (Professor of Economics at Hongik University, pictured), said in a phone interview with Asia Economy on the 25th, when asked about the new government's fiscal management direction, "If we do not control (national debt) now, it will become impossible to manage when the long-term problems worsen." This is a warning and concern about the ‘populist’ fiscal policies recklessly proposed by politicians during the recent presidential election period.

The Presidential Transition Committee officially requested the Ministry of Economy and Finance, the fiscal authority, on the previous day to "prepare to promptly submit a supplementary budget bill to the National Assembly." The main purpose is to compensate small business owners and self-employed individuals who suffered sales losses due to COVID-19 quarantine measures. Although the Transition Committee did not specify the size of the supplementary budget, President-elect Yoon Seok-yeol pledged a ‘50 trillion won supplementary budget’ during his candidacy. The Ministry of Economy and Finance plans to secure funds by cutting pre-allocated budgets, utilizing global surplus funds, contingency funds, and others. However, the internal atmosphere is that it will be difficult to secure 50 trillion won in funds without issuing additional deficit bonds regardless of the method taken.

President Seong explained, "Ultimately, there are two ways to secure funds: taxes and bond issuance," adding, "Raising taxes to fund expenditures means the current generation bears the cost, while issuing bonds means the next generation bears the burden."

He criticized, "Recent fiscal spending increases are partly due to COVID-19, but mostly for welfare expenditures benefiting the ‘current generation’ with almost no future investment. Politically and economically, it is a structure where those under 10 years old or not yet born?who have no voting rights and thus no voice?bear the costs for the benefits of the current generation."

To reduce the burden on future generations, academia recommends ‘tax increases’ as inevitable. Professor Park Myung-ho of Hongik University, who presented at the ‘2022 Spring Regular Academic Conference’ hosted by the Korean Fiscal Association at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul, said, "Under the ‘intra-generational responsibility principle,’ we must pursue measures to expand tax revenue for permanent welfare funding," and argued, "Considering the scope of taxpayers and potential for tax rate increases, the most growth-friendly among the three major tax categories, the value-added tax rate, should be gradually raised to 15%." The current VAT rate is 10%, unchanged since its introduction in 1977.

Ahn Jong-seok, Director of Gaon Tax Policy Research Institute, also suggested, "Long-term active tax increase measures such as raising tax rates are necessary," and "Tax issues should be addressed simultaneously with structural reforms of social insurance systems like national pension and health insurance as a package."

Meanwhile, Professor Kim Woo-cheol of the Department of Taxation at the University of Seoul, who is also serving as a member of the Transition Committee, attended the academic conference. Although initially listed as a comprehensive discussant, he did not make a separate public statement considering his involvement with the Transition Committee.

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