Government spending is surging on the back of chip-driven tax windfall that may not last
The government’s budget proposal for next year, totaling 820.9 trillion won ($599 billion), is the largest ever. The 12.8 percent year-on-year rise and the 92 trillion won increase are also the largest on record.
The government’s ability to ramp up spending so substantially is due above all to an exceptional tax revenue windfall brought about by the semiconductor supercycle. The ambitious 162 trillion won Future Response Fund, too, would not have been possible without the surge in corporate tax revenues caused by the semiconductor boom.
One cannot help but question how sustainable such a “superexpansionary budget” is.
With national debt almost certain to top 1,500 trillion won next year, the government is jacking up spending at an excessive pace. The government budget surpassed 600 trillion won in 2022 and entered the 700 trillion won range this year, four years later.
Next year, however, the figure will cross into the 800 trillion won span after just one year. According to government projections, total spending will continue to rise, surpassing 1,000 trillion won in 2030, the final year of President Lee Jae Myung’s term.
Many of the programs funded through the Future Response Fund, including support for local areas and young people, as well as education and childcare for infants and young children, are likely to become ongoing programs rather than one-off expenditures.
The government has already pledged to expand welfare programs, including providing 1.2 million won a year from birth through age 18 to help young people become self-reliant and offering free education at national universities in the provinces.
If tax revenues decline as the semiconductor industry slows, it is questionable whether whichever administration is in power then will be able to cut such spending.
If the government inflates the budget on the assumption that a temporary boom will last, it could fall into a vicious cycle of increasing national debt to make up for declining tax revenues.
Temporary revenue gains should not be used to justify permanent spending commitments.
Thanks to the surge in tax revenues, the government projects that both the managed fiscal deficit and the national debt-to-GDP ratio will decline next year. This amounts to saying that the government can improve its fiscal health even as it spends more money than ever before.
Fiscal health should be judged not by how much the government can spend during a boom, but by whether it can afford to sustain that spending after the boom ends.
There are also considerable concerns about chronic wasteful spending in the face of this year’s supersized budget.
When the budget is increased sharply all at once, it is only natural that each government ministry will be more tempted to expand existing programs or add new ones.
Programs with unclear or overlapping effects, cash handout programs and projects driven by constituency demands are perennial targets of scrutiny.
There are also growing concerns that lawmakers’ “note budgets” — pork-barrel projects for their constituencies slipped into the budget at the final stage of deliberations — will become even more rampant ahead of the 2028 general election.
The Future Response Fund is no exception. It must not degenerate into a giant government slush fund for catering to politicians’ discretionary demands simply by carrying the name “future.”
Sunset provisions should be applied to new programs, while existing programs should be subject to performance evaluations to determine whether they should be continued or discontinued.
If the government spends this year’s sharp increase in corporate tax revenues on cash handouts and locks in the resulting spending in ways that make it difficult to cut, it could face serious trouble when the semiconductor industry takes a downturn.
The National Assembly must rigorously assess the sustainability of spending and carefully scrutinize the merits of each program to prevent a massive waste of the megasized budget.
khnews@heraldcorp.com
