August 09, 2019 13:57
Tax revenues in the first half of this year fell by W1 trillion on-year to W156.2 trillion (US$1=W1,210). The time is coming to an end when strong business performance powered lavish tax revenues. The government frontloaded 65.4 percent of this year's budget in the first half, but tax revenues declined, resulting in a record W59 trillion deficit. This shows that the government's pump-priming measures have failed.
Over the last two years, the government used taxpayers' money to create jobs and implement various stimulus measures. But the result is disappointing. Korea ranks last in the OECD in terms of economic growth, while unemployment has soared to levels last seen during the 1997 Asian financial crisis. The national economy is a shambles, while small businesses are on the verge of bankruptcy and household finance is getting worse and worse. It has become painfully clear that the government's tax-fueled stimulus measures are largely useless. Even if it spends all of the W6 trillion in supplementary budget it is desperately seeking, GDP growth will edge up only 0.1 percentage points. There are fears that the country’s economy will not grow even two percent this year, marking a 10-year low.
This is the result of tax spending without policy support. The government ended up pouring taxpayers' money into a bottomless pit, while failing to get rid of red tape hampering corporate investment. It wasted trillions of won to create mostly menial jobs and clear up the side effects of jacking up the minimum wage but just ended up sapping the energy from businesses. The result is a vicious cycle of worsening fiscal health and a sputtering economy.
Japan's retaliatory trade curbs and U.S.-China trade and currency wars are weighing heavy on the Korean economy. As we face huge external risks, we need to cut back on fiscal spending and secure capital reserves to weather the storm. Pump-priming measures to boost GDP by a fraction of a percentage point will not be able to help us ride out the storm. We need to stop wasting taxpayers' money and look for ways to stimulate our real economy. A major overhaul in government policy is the answer.
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