National Debt Growth Rate Ranks 1st in OECD... Government Focused Only on 'Debt Concealment'

90.5 Trillion Deficit in Last Year's National Budget... 110.8 Trillion Forecast for This Year
Pension Liabilities for Public Officials and Military Personnel Account for Over Half of National Debt... Fiscal Authorities Only Excuse "Future Pensions Are Not National Debt"

[Asia Economy Sejong=Reporter Kwon Haeyoung] As national debt surged by about 215 trillion won in one year due to increased COVID-19 spending, the country's finances have also rapidly deteriorated. Despite a faster-than-expected economic recovery last year and an excess tax revenue of 61 trillion won, the managed fiscal balance recorded a deficit exceeding 90 trillion won. In particular, amid the rapidly increasing national debt, the government is preoccupied with hiding the debt, and with the continued populist spending by the political sphere, concerns over the deterioration of fiscal soundness are growing.

◆Nation’s Finances Show 90 Trillion Won Deficit Due to COVID-19 Driven Expansionary Fiscal Policy＝According to the '2021 Fiscal Year National Settlement' announced by the government on the 5th, the managed fiscal balance recorded a deficit of 90.5 trillion won last year. The managed fiscal balance is an indicator that shows the actual state of the country's finances by excluding social security fund balances from the integrated fiscal balance (government total revenue minus total expenditure).

The managed fiscal balance deficit narrowed by 21.5 trillion won compared to the previous year (-112 trillion won). The ratio of the managed fiscal balance to Gross Domestic Product (GDP), which reflects the debt level relative to the size of the economy, also shrank by 1.4 percentage points from -5.8% to -4.4% during the same period. However, considering the excess tax revenue of 61.4 trillion won generated last year due to increased asset tax revenues such as real estate and stocks, the deficit remains large.

Total revenue last year was recorded at 524.2 trillion won, an increase of 58.7 trillion won (12.6%) from the previous year, with national tax revenue rising by 58.5 trillion won (20.5%) due to a favorable asset market. Total expenditure also reached a record high of 496.9 trillion won, up 43.1 trillion won (9.5%) from the previous year. This was due to a significant increase in fiscal spending for COVID-19 damage support, quarantine response, and economic recovery. A surplus of 23.3 trillion won was generated.

The fiscal deficit is expected to exceed 100 trillion won again this year. According to the National Assembly Budget Office, the managed fiscal balance is already forecasted to have a deficit of 110.8 trillion won this year due to the first supplementary budget. This marks a return to exceeding 100 trillion won in deficit just two years after first surpassing that mark in 2020. Especially this year, it is difficult to expect excess tax revenue like last year due to a real estate transaction freeze and a stock market downturn.

◆Fastest Increase in National Debt... Government Preoccupied with Hiding Debt＝As can be seen from the rapidly worsening fiscal balance over the past few years, the rapid increase in national debt is a concerning issue. National debt rose from 1,433.1 trillion won at the end of 2016, just before the Moon Jae-in administration took office, to 2,196.4 trillion won at the end of 2021, an increase of 763.3 trillion won (53.3%). According to the International Monetary Fund (IMF), Korea's increase rate of national debt relative to GDP from 2021 to 2026 is 5.4%, ranking first among OECD member countries. Considering that the average increase rate of national debt among the Group of Seven (G7) countries is -1.2% (U.S. 0%, U.K. 0.6%, Japan -0.4%), Korea's national debt is increasing at an excessively fast pace.

The government's attitude of being preoccupied with hiding national debt is also problematic. In a press release on the same day, the Ministry of Economy and Finance devoted a separate explanation titled 'Reasons Why Future Pension Estimates Are Difficult to Consider as National Debt' regarding pension liabilities (1,138.2 trillion won), which account for more than half of the nearly 2,200 trillion won national debt. The ministry explained, "Future pension payments, whose timing and amounts are not fixed, are spread over a period of about 70 years or more," and "The estimated amount only considers the total pension expenditure without accounting for pension income such as contributions paid by public officials and military personnel." However, with nearly 130,000 additional public officials hired under the current administration and the public officials' pension fiscal deficit expected to increase from 2.1 trillion won in 2020 to 32.1 trillion won in 2090, critics argue that fiscal authorities are merely making excuses amid worsening pension finances.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "Public officials' and military pensions essentially have the nature of national debt and should be managed like national debt," adding, "The announcement of the 2021 national debt reconfirms that reform issues regarding public officials' and military pensions, as well as pension funds, cannot be avoided." Professor Kang Sung-jin of Korea University’s Department of Economics emphasized, "Public officials' pensions require government funds to cover fiscal deficits, but the government’s claim that this is not national debt is an attempt to distort statistics," and stressed, "The new administration must urgently pursue reducing the pace of national debt increase and strengthening fiscal soundness as a top priority."

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