September 10, 2020 13:27
After deciding to provide a second round of relief payouts for those affected by the coronavirus epidemic, President Moon Jae-in cited "fiscal difficulties" to justify handpicking the recipients this time round rather than giving the money to everyone indiscriminately. Cheong Wa Dae policy secretary Kim Sang-jo, apparently frightened of a backlash, muttered darkly about "dangerous circumstances" over the mid to long term if the government fails to rein in sovereign debt. The is a bizarre spectacle. The Moon administration had stopped its ears and gone "la la la" every time someone sounded a warning against its wanton welfare expenditures, endless supplementary budgets and dismissal of the old sovereign debt ceiling. Now suddenly it claims to be worried about fiscal health.
Only a couple of weeks ago the government drew up a W556-trillion "super" budget for 2021, up 8.5 percent compared to this year's (US$1=W1,188). Then it got caught in its own trap -- by handing out money indiscriminately in the first round of coronavirus relief payments, even to the super-rich, it now looks mean by restricting it to the unemployed and small businesses in the second round, and needs an excuse. Surveys show that 46 percent of the public want the second round of relief payments to be paid out to all citizens again. That is why the populist government needs to at least pretend that it is getting worried about fiscal debt. It may even have scared itself by the speed of deterioration of the country's fiscal health, which has increased the risk of a downgrade in Korea's sovereign credit rating during Moon's remaining term in office.
In his inauguration speech in 2017, Moon vowed to create a country "you have never experienced." During the four years of Moon's tenure so far, Korea's real economic growth remained at six percent, while sovereign debt surged 43 percent. In other words, Korea's sovereign debt is rising seven times faster than its economic growth and is expected to soar to more than W1 quadrillion. International ratings agencies have warned that Korea's credit rating could be slashed if the debt ratio surpasses 46 percent -- and the forecast for next year is 46.7 percent.
Unfortunately the public has by now become addicted to government handouts, making it extremely difficult to put the brakes on this practice. This year alone, the public got a taste of W8 trillion in unemployment benefits, W5 trillion in job-search subsidies, W2 trillion in childcare allowances and W14 trillion worth of relief payments. Trillions of won worth of infrastructure projects are in progress across the country as part of pump-priming measures. The government is spending taxes as soon as they are collected and will soon be unable to catch up with the runaway train. Provincial governments are also racing each other to shower money on voters.
But does the government really care about debt if it is to be shouldered by future administrations? If it was, it would not have slipped in W20,000 support for monthly mobile phone bills for all citizens as part of the second round of payouts. No, once the next presidential election comes in 2022, it will go straight back to its old ways.
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