Discord is deepening between the ruling party and the Finance Ministry over the direction of the country’s planned fourth round of coronavirus relief payments.
In his parliamentary speech last week, Rep. Lee Nak-yon, chairman of the ruling Democratic Party of Korea, said his party would consult with the administration on providing both targeted support for those going through more severe difficulties, such as the self-employed, and universal stimulus checks for all people.
Finance Minister Hong Nam-ki, who doubles as deputy prime minister for economic affairs, was quick to respond negatively to Lee’s initiative. He expressed concern that it would be difficult for state coffers to fund both handout programs at the same time, noting the basic fiscal principle should be to spend properly, not more.
The government would have to issue about 20 trillion won ($17.8 billion) in state bonds to draw up an extra budget aimed at financing the envisaged two-pronged relief package. This would add to the planned issuance of debt worth 94 trillion won to make up for a deficit in the annual budget for 2021 set at a record 558 trillion won.
The implementation of the supplementary budget as requested by the liberal ruling party would increase South Korea’s national debt nearly to 1,000 trillion won by the end of 2021. Its debt-to-gross domestic product ratio, a gauge of a nation’s fiscal health, is projected to exceed 48 percent this year, up from 44 percent at the end of last year.
The country’s national debt is set to continue to rise at a steep pace in the years to come with more fiscal spending needed to fund expanded relief and welfare programs amid a decline in tax revenues.
Vice Finance Minister Ahn Il-hwan warned Thursday that Korea’s fiscal conditions might turn into what is known in Asia as the crocodile’s jaws -- in which government spending is on an upward trend while tax revenue is on a downward curve.
The term came from Japan’s long-term structural fiscal deficits in the early 1990s that led to the “lost two decades” in what is now the world’s third-largest economy. At the time, Japan saw its national debt-to-GDP ratio balloon from around 40 percent to more than 100 percent just over five years.
But concerns and warnings raised by top Finance Ministry officials have fallen on deaf ears in the ruling party.
In a meeting of the party’s supreme council on Friday, participants put more pressure on the ministry to accept its demand to draw up a supplementary budget designed to fund the two-pronged relief package.
Rep. Kim Tae-nyeon, the party’s floor leader, urged Finance Minister Hong to be bold in implementing a new round of COVID-19 relief programs. He said the pandemic crisis could not be countered with the means and standards of the past, adding that Hong and other ministry officials needed a “change of mindset and (to) make a bold decision.”
It is certainly necessary to increase fiscal expenditure to help cope with the prolonged pandemic crisis. But it is sensible for the Finance Ministry to limit additional COVID-19 relief payments to those hit hardest by the pandemic-caused difficulties.
It may be ruling party lawmakers who need a change of mindset. They would do well to withdraw their call for yet another round of universal handouts to all people, which critics say seem motivated to win voter support ahead of key mayoral by-elections in the nation’s two largest cities -- Seoul and Busan -- in April.
It would serve the nation better to increase fiscal spending on helping nurture new industrial sectors and enhance corporate competitiveness, which would lead to the creation of more well-paying jobs. This would result in increasing tax revenues and preventing a rapid deterioration of fiscal soundness.
The Finance Ministry needs to be more determined to maintain fiscal health, as both the ruling party and opposition parties are poised to pour out populist pledges in the runup to the presidential election slated for March 2022.
At Friday’s meeting of senior ruling party members, Rep. Kim Jong-min urged fiscal authorities to avoid falling into the trap of self-righteousness. But in the eyes of many, the Finance Ministry should now adhere to just such a self-righteous stance.