The Korean economy is losing vitality fast, making it impossible to attain this year’s growth target that has already been revised downward to 4.3 percent. The year-on-year growth dropped to 3.4 percent in the third quarter, the lowest since the third quarter of 2009.
Given that the three-quarter average stood at 3.7 percent, the nation’s economy would have to push up the final quarter’s growth beyond the 6 percent level to attain the 2011 growth target. That would be an impossible job, with the economic conditions worsening in and outside of the nation.
But the problem is that next year will be worse than this year if private economic think tanks are correct in their forecasts. For instance, the Samsung Economic Research Institute says growth will be at 3.6 percent in 2012 ― well below the administration’s goal of generating 4.5 percent growth.
Is the Korean economy following the footsteps of the world’s mature economies, which regard growth below the 3 percent level, not as an aberration, but as a norm? With this nagging question staying in the back of their mind, members of the National Assembly are set to deliberate in earnest the administration’s 2012 budget bill during the next several weeks ― a budget bill that is drawn on the assumption that the economy will grow 4.5 percent next year.
On Wednesday, the National Assembly Budget Office released a five-volume report on the 362 trillion won budget bill ― a report that contains detailed analyses on the administration’s revenue projections and spending plans. It is an invaluable guide for lawmakers participating in the process of budgetary deliberation.
This year, the report came out two weeks later than the usual. The date of its release coincided with the local by-election day, on which Seoul citizens went to the polls to elect their mayor. As such, some opposition lawmakers raise suspicions that the Budget Office withheld the report until the by-election day in an attempt to avoid doing any harm to the ruling party.
But the conspiracy theory is irrelevant, given that, had it been produced earlier, few lawmakers would have paid adequate attention to the report. The ruling and opposition parties and their lawmakers, regarding the by-election as a prelude to the parliamentary and presidential elections next year, had been fiercely campaigning for their candidates even before it was officially sanctioned on Oct. 13.
Now that the by-election is over, members of the National Assembly are set to resume the process of readjusting the spending plans, as they see fit, and passing the budget bill by the Dec. 2 constitutional deadline. Among the things they are well advised to do is to overcome the temptation to yield to unwarranted demands for welfare-spending increases and meet the deadline for passage.
Welfare spending, set to grow 6.2 percent next year, will account for 27.9 percent of the total spending ― the highest ever. Yet both the ruling and opposition parties will certainly be tempted to curry favor with the electorate by increasing welfare spending further. But such instant gratification, when unwarranted by revenues, would spell doom for a balanced budget, which the administration has committed itself to attaining in 2013.
Moreover, revenues will fall short of the target if the growth rate is lower than the administration’s 4.5 percent growth projection. If it is truly committed to fiscal prudence under these circumstances, the administration cannot afford to increase welfare spending. Instead, it will have to make a deep cut to its spending. It is necessary for the nation to tighten its belt as growth in exports is projected to be halved, pushing the actual growth rate below the potential growth rate of 3.8 percent.
In his budget message on Tuesday, President Lee Myung-bak called on the National Assembly to pass the budget bill by the deadline. He had good reason to make the appeal: The National Assembly has failed to meet the deadline during the past 12 years, except for 2002. The administration was on the verge of drawing up provisional budgets in 2004 and last year, as the National Assembly barely passed the budget bills on Dec. 31. No such dereliction of duty can be allowed.