The National Assembly on Tuesday passed next year’s budget bill worth 512.3 trillion won ($430 billion), making little changes to the government-proposed spending plan.
The ruling Democratic Party and four minor opposition parties rammed through the budget bill they had deliberated on behind closed doors in the absence of the main opposition Liberty Korea Party.
It is hard to justify the budgetary deliberation that was not made in public by relevant parliamentary committees.
Furthermore, lawmakers from the ruling and minor opposition parties were preoccupied with securing more funds for pork-barrel projects ahead of next April’s general election rather than ensuring the efficient spending of taxpayers’ money.
In fact, the ruling party leadership earlier prodded budget planners in the administration to increase their original budget requests for next year. Government agencies had requested a total of 498 trillion won in annual spending for 2020. But the proposed amount -- already a sharp increase from this year’s budget set at 469.6 trillion won -- was further raised to 513.5 trillion won.
The 2020 budget fixed by the ruling and minor opposition parties, which represented a 9.1 percent increase from this year, marks the first time that South Korea’s annual government spending exceeds 500 trillion won.
The main opposition Liberty Korea Party presented its own revised budget bill worth 499.2 trillion won, but Assembly Speaker Moon Hee-sang did not put it to vote.
The planned increase in fiscal spending has been mostly allocated to expand cash transfers, create temporary jobs and support the livelihoods of unemployed and elderly people. Spending on various populist programs is set to rise steeply next year to woo voter support and offset the fallout from the misguided policies pursued by President Moon Jae-in’s administration, including sharp minimum wage hikes.
Still a small part of the budget -- just 12 trillion won -- has been set aside to promote innovative sectors that hold the key to the future growth of the economy.
The Finance Ministry has said it will frontload 70 percent of the 2020 budget in the first half of the year to prop up the slowing economy.
What is conspicuously missing from the mindset of government budget planners and lawmakers is concerns about the possibility of the country’s fiscal soundness deteriorating at a steep pace.
According to a report released by the Finance Ministry on Tuesday, Korea’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 11.4 trillion won in the first 10 months of the year. The figure was the largest in a decade since the same period in 2009 when the deficit reached 13.3 trillion won.
Over the cited period, the deficit of the managed fiscal balance -- the shortfall in the government’s income compared with its spending, excluding social security funds -- soared to 45.5 trillion won, the highest since the January-October period of 2011.
It will be almost impossible to achieve the government’s goal of keeping the overall fiscal balance and the managed fiscal balance at a surplus of 1 trillion won and a deficit of 42.3 trillion won, respectively, this year.
The country’s fiscal imbalance will most likely worsen down the road, as the Moon administration is poised to adhere to an expansionary fiscal policy despite the likelihood that tax revenue will continue to fall amid a prolonged economic slump.
In the first 10 months of the year, state tax revenue declined by 3 trillion won from a year earlier to 260.4 trillion won, marking the first on-year fall since 2013 for the January-October period. The decrease was attributed mainly to a reduction in corporate tax revenue, which reflected the plummeting profits of local companies troubled with deteriorating business conditions at home and abroad.
Reckless fiscal expansion unaccompanied by increased revenue will lead to a surge in national debt. If state bonds are issued to fill the expected budget deficits, Korea’s national debt, which stood at 698.6 trillion won as of October, is projected to surpass 800 trillion won in 2020 and amount to 1,061 trillion won by 2023.
It should be reminded that unrestrained spending now amid a low birthrate and the rapid population aging would leave a perennial burden on future generations.
In more immediate economic terms, curbing inefficient government expenditure is needed to secure more fiscal room for the country with a relatively small open economy to prepare for the possibility of a full flare-up in external risks in coming years.