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Ease finances, revitalize the embers of economic recovery, 200 trillion in welfare spending … Medium rigid
3.1% reduction in corporation tax per Crown … 2 years after 2 years of national debt per capita
“The Desperate Need for Regulatory Reform to Save Investor Sentiment”
View largerThe reason the government created a super super budget approaching 556 trillion won by increasing its debt is due to the desperate need to ignite the economic recovery even using finance as fuel. As the private economy has contracted due to the prolonged epidemic, it is to avoid the ‘Gyeonggi cliff’ by releasing the money.
However, there is great concern that the debt growth rate is so steep that the national debt exceeds 1,000 trillion won after two years and the ratio of national debt to gross domestic product (GDP) reaches 60 % after four years, which is rapidly undermining fiscal strength.
○ Employment and welfare budget of 200 billion won
On the 1st, the government set next year’s budget to 55.5 trillion won, an increase of 43 trillion won (8.5%) over this year’s budget. The health, wellness and employment sectors, which are called the wellness budgets, are the largest at 19.99 trillion won, an increase of 10.7%. In light of past cases, it is very likely to increase during the deliberation process of the National Assembly. In the welfare budget, rigid items such as the basic pension and basic life security account for half. Once done, it is difficult to reduce. In addition, 8.6 trillion won will be invested to create public jobs (1.3 million), which are based on taxes, such as seniors, and private jobs with many short-term part-time jobs.
Compared to the expansion of expenses, next year’s total revenue (483 trillion won) only increases by 0.3% (1.2 trillion won). The expenses are 72.8 trillion won more than the total income. It is the largest “deficit budget” in history.
The main cause is a decrease in tax revenue. Next year’s national tax revenue is forecast to decline by 9.2 trillion won (3.1%) from this year due to worsening business performance due to the novel coronavirus infection (Corona 19). Insufficient money is financed by debts like deficit government bonds. The government is excluding tax increases from options. Vice Premier Hong Nam-ki and the Minister of Strategy and Finance said: “Overcoming the crisis is more important than the increase. “I did not budget for the tax increase while preparing next year’s budget.” The burden of financial expansion has no choice but to pass it on to future generations. However, there is also an opinion that the wealthy class is already rising due to the increase in property tax and income tax.
The size of the deficit government bond issue next year is 89.7 trillion won, the highest ever based on this budget. The government has already issued a deficit of KRW 60.3 trillion this year and furthermore posted a deficit of KRW 37.5 trillion in the first and third rounds of complementation. As this trend continued, the deterioration in fiscal soundness became inevitable. The fiscal deficit managed next year will increase to 5.4% of GDP and the national debt to 46.7% of GDP. The national debt ratio this year was 43.5%.
○ In two years, the national debt per capita is likely to exceed 20 million won.
The national debt, which exceeded 800 trillion won for the first time this year, will increase to 945 trillion won next year. In 2022, the government estimates that the national debt (10,703 trillion won) will exceed 1,000 trillion won. The per capita national debt divided by the registered resident population is currently around 15.4 million won, but is expected to increase to around 20.6 million won by 2022.
Once a deficit government bond is issued, the debt will continue to grow because it cannot be repaid the following year. The government predicts that in 2024, the national debt will rise to 1,327 trillion won and the debt-to-GDP ratio will rise to 58.3%. Even this assumes that the economy will constantly grow by 4% (current standard). If the Corona 19 crisis does not ease easily or the economic recovery is slow, the possibility that the 60% debt ratio will advance cannot be ruled out. Until recently, Korea’s fiscal strength indicator, which had taken a debt ratio of 40% as a margin line, is rising to the level of major European countries. Norway and Sweden have a debt ratio of around 50%, while the Netherlands is around 60%.
Experts advise that for a sustainable fiscal policy, since private tax revenues must be supported, drastic regulatory reforms and policy changes are needed to save business investment sentiment. If the fiscal deficit increases too much, there is no room to invest money when necessary, making it difficult to respond to unexpected variables like this year, and the national credit rating may fall.
Seong Tae-yoon, a professor of economics at Yonsei University, said, “It is difficult to reduce the amount of expenses once they are incurred, and it is difficult to expand tax revenues through tax increases.
Sejong = Song Chung-hyun [email protected] · Reporter Nam Kun-woo
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