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[Editorial] Price of populism

Opposition demands extra budget ridden with cash handouts

By Korea Herald

Published : Jan. 27, 2023 - 05:30

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Soaring heating bills and high inflation are fanning worries over the cost of living.

The retail price of city gas rose about 38 percent last year as a consequence of the international price of liquefied natural gas, mostly used for heating, surging 128 percent.

The cold has been unusually severe this winter.

The government has frozen gas rates for the first quarter but says that additional hikes are unavoidable after the second quarter. To make matters worse, Seoul is currently taking procedures to raise subway and bus fares soon.

In this situation, the majority opposition Democratic Party of Korea said Tuesday that it would demand a 30 trillion won ($24 billion) supplementary budget proposal for projects to stabilize people's livelihoods, including energy bill support.

The party holds a position to push what its leader Lee Jae-myung pledged during his New Year news conference, such as handing out inflation relief cash ranging from 150,000 won to 400,000 won to all except the top 20 percent of households by income.

In the press conference on Jan. 12, Lee proposed nine emergency projects for the livelihoods of people. He estimated their total cost at 30 trillion won and said that an extra budget was the only way to pay for them. Most of the projects he proposed are handouts such as cost-of-living grants, rent support and an increase of local consumption vouchers.

The 638 trillion-won government budget for this year passed the National Assembly on Dec. 24. It is unconvincing to demand a large supplementary budget not long after that. As a rule, a supplementary budget is funded by excess tax revenue, which cannot occur at the beginning of the year. Rather, tax revenue may run short this year. Corporate tax revenue dropped sharply due to earnings shock at semiconductor companies. Real estate tax revenue decreased amid transaction cliff.

It is self-contradictory for the Democratic Party to demand a supplementary budget after slashing major items of the government budget in the process of negotiations.

If the government tries to solve problems this way whenever people's cost-of-living worries mount, it will go bust. Government debt surged from 627 trillion won in 2016 to 1,069 trillion won late last year. Its proportion to the gross domestic product expanded from 36 percent to 49.7 percent over the same span. This was caused by the Moon Jae-in administration and the Democratic Party increasing government debt recklessly through populist policies. It is shameless of the party to try to figure out ways to spend more, far from reflecting on itself.

Rising public utility charges including heating bills are greatly affected by external variables including the war in Ukraine and international energy markets.

The Moon administration's responsibility for this is far from small. LNG prices almost tripled over about a year from late 2020 during Moon's presidency. But his government cut residential gas rates by about 11 percent in July 2020 then kept them frozen for a year and nine months before raising them slightly in April, 2022, after the presidential election. As a result, President Yoon inherited a situation in which the inflationary pressure behind heating bills, which had been unsustainably suppressed, would inevitably force sharp increases for households.

The Moon administration also continued to delay increases in electricity rates to avoid criticism for adverse effects of its policy to phase out nuclear energy. People are paying the price all at once for its avoidance of unpopular steps.

Putting together a supplementary budget amid high inflation is a populist idea that will only aggravate economic pain of the working class. It is risky for the government to distribute cash handouts in a bid to curb price increases. Such a step is liable to stimulate demand and consumption, which will eventually fan more inflation.

At the present stage, a supplementary budget is not a solution, but measures are needed to assist the economically vulnerable people who are battling the cost-of-living crisis. The government should update energy rates periodically while seeking ways to raise the efficiency of energy use. Politicians must stop deluding people with sugar-coated populist ideas immediately and figure out ways to help those on low incomes, such as heating subsidies.