A flood of pledges to provide cash handouts have recently been floated by politicians and local government chiefs, most of whom are affiliated with the ruling Democratic Party of Korea. Such populist promises come ahead of the next presidential vote and nationwide local elections slated for March and June, respectively.
Major presidential hopefuls of the ruling party have competitively come up with pledges designed to woo young voters, including one to give 10 million won ($8,925) in cash to all high school graduates who have not gone on to university to let them travel around the world. Ruling party lawmakers have submitted a raft of bills aimed at winning the hearts of youths and small business owners.
About 2,000 cash handout programs are implemented by local governments across the country. Still, many local government heads are pushing to introduce new ones, such as the planned payment of 20,000 won in monthly allowance to all elementary school students in a ward of the central city of Daejeon.
Carrying out such populist pledges would further bloat South Korea’s national debt, which has been on a steep rise since the launch of President Moon Jae-in’s administration in 2017. Largely due to what critics see as the Moon government’s reckless fiscal spending, the country’s national debt, which remained at 660.2 trillion won in the year Moon took office, is projected to be close to 1,000 trillion won this year.
The ratio of national debt to its gross domestic product is also forecast to rise from 36 percent to 50 percent over the cited period. With debts owed by public corporations counted, the number is estimated to reach 60 percent this year.
The worsening fiscal indicator points to the heightening risk of having the country’s sovereign credit rating downgraded. Korea’s economy, which is heavily integrated into international trade and finance, is particularly vulnerable to the possible fallout from a downgraded sovereign credit rating.
Without a significant tax increase, large amounts of state bonds will have to be issued to cover the increased government spending and the burden of paying back the mounting debt will fall on the shoulders of the younger generation.
According to a recent report by the National Assembly Budget Office, keeping the country’s national debt-to-GDP ratio at the current level until 2060 requires collecting at least 68 trillion won in additional taxes annually.
Expanding the tax base beyond imposing higher levies on the rich is needed to prevent the further worsening of fiscal soundness. But the Moon government and its successors alike can hardly be expected to move toward the across-the-board tax hike, which will be unpopular with a larger bloc of the electorate.
Young voters need to show their objection to introducing more cash handouts by casting ballots against candidates making such populist promises. Even barring additional cash handout programs, the country’s fiscal spending is set to continue to rise at a steep pace amid the rapid aging of the population coupled with a plummeting birthrate.
Young voters have been the greatest victims of the Moon government’s misplaced policies that have resulted in widening the economic inequality in the nation. They have felt increasingly frustrated with dwindling opportunities to land good-paying jobs and soaring home prices.
A string of pro-labor measures taken by the Moon administration have only benefited unionized regular workers, making the job market more rigid. By imposing stricter regulations in a wide range of areas, government officials and ruling party lawmakers have discouraged companies from increasing investment and employment. The number of full-time employees working more than 40 hours per week fell from 20.84 million in 2017 to 18.89 million in 2020.
Home prices have soared out of reach for young first-time buyers in recent years, as the Moon government has taken measures to limit the supply of new homes in Seoul and raise property-related taxes.
What is now needed to ease the predicament faced by youths is a drastic shift away from ill-conceived policies rather than an indiscreet offer of cash handouts.