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(EDITORIAL from Korea Herald on April 10)

All News 07:09 April 10, 2020

Populist competition
Reckless spending pledges by rival parties come amid mounting national debt

Rival political parties have competitively proposed to provide more people with more money in emergency rescue aid to cushion the impact of the novel coronavirus crisis.

Such populistic competition is engulfing other policy issues in the campaign for the April 15 general election.

The ruling Democratic Party of Korea pledged Monday it would push to expand the scope of recipients of planned emergency relief funds to all households.

Party leader Lee Hae-chan said it was important to show that the nation protects everyone regardless of income level.

Last month, the government announced a plan to offer up to 1 million won ($820) to about 14 million households comprising the bottom 70 percent income bracket.

The ruling party's pledge apparently comes in response to an earlier proposal by Hwang Kyo-ahn, head of the main opposition United Future Party, to grant half a million won to each and all of 51.5 million Koreans.

Preoccupied with widening voter support, the rival parties are turning a blind eye to the country's deteriorating fiscal health.

It is certainly important and necessary to increase government spending to help people through the hardship caused by the coronavirus. But caution needs to be taken to preserve fiscal room to cope with a full range of economic and social challenges that will face the nation after the COVID-19 crisis.

Government data made available Tuesday should ring an alarm bell against the reckless spending proposals by political parties.

The country's national debt stood at 728.8 trillion won as of end-2019, up 48.3 trillion won from a year earlier, according to the settlement of state accounts endorsed by the Cabinet. It marks the first time Korea's national debt has surpassed the 700 trillion-won threshold. The amount translates into about 14 million won in per capita debt.

The country's overall fiscal balance -- the difference between the government's gross revenue, including taxes and proceeds from asset sales, and its total expenditure -- recorded a deficit of 12 trillion won last year, accounting for 0.6 percent of its gross domestic product. Both the amount and the proportion were the highest in a decade.

Korea's managed fiscal balance -- the shortfall in the government's income compared with its spending, excluding social security funds -- amounted to 54.4 trillion won in 2019, the largest since related data began being compiled in 1997. The sum represented 2.8 percent of the country's GDP last year, the highest since 2009.

Korea's fiscal imbalance has worsened as President Moon Jae-in's administration is increasing fiscal spending to offset the negative effects of its income-led growth policy backed by pro-labor measures, while tax revenue declines amid a prolonged economic slump.

The government posted a 1.3 trillion-won deficit in tax revenue last year. In the first two months of 2020, Korea's state tax revenue dropped by 2.4 trillion won from the same period last year to 46.8 trillion won, according to a report from the Ministry of Economy and Finance.

Before announcing the plan to offer emergency rescue funds to households in the bottom 70 percent income range, the government estimated national debt would increase to 815.5 trillion won this year, accounting for 41.2 percent of the country's GDP.

The figures are set to rise further now that the government plans to issue more state bonds to help finance the relief program that will cost 9.1 trillion won.

Expanding the program to cover all 20 million households as proposed by Lee, the ruling party chairman, is estimated to cost 13 trillion won. Implementing the proposal made by opposition leader Hwang to dole out 500,000 won each to the entire population would require 25.9 trillion won.

They put forward no credible way to fund their proposals.

Such populist pledges are far from meeting the urgent need to provide financial support for people left more vulnerable to the fallout from the coronavirus outbreak, including small business owners and nonregular and daily workers.

The most plausible idea would have been to give the relief money to households whose income stands at or below 100 percent of the median income, as preferred by the Finance Ministry.

Hwang's turnaround from his initial objection to the indiscriminate distribution of rescue funds is likely to undercut his party's efforts to curb reckless fiscal expenditure by the Moon government. It also risks deflecting the focus of its campaign strategy from highlighting the government's ill-conceived policies that have dampened economic activity before the coronavirus outbreak.

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