It is hard to understand the reasoning behind the additional fiscal spending planned by the government for the rest of this year, more than half of which would have to be covered by issuing national bonds.
A 6.7 trillion won ($5.78 billion) extra budget bill was submitted to the parliament for approval Thursday, a day after it was endorsed by the Cabinet. This is on top of a record-high 470 trillion won budget set for 2019, up 9.5 percent from last year.
At a Cabinet meeting in March, President Moon Jae-in first raised the need for a supplementary budget to cope with air pollution caused by fine dust.
But a closer look shows that the main aims of the proposed extra budget are to mitigate the negative effects of ill-conceived policies pursued by the Moon government and to win voter support for the ruling party in the run-up to next year’s parliamentary elections.
Under the supplementary budget bill, 1.5 trillion won has been allocated to cope with fine dust. But the amount set aside to install air purifiers in schools and welfare facilities and dole out dust masks to vulnerable people is only 200 billion won. The government has already set aside 1.9 trillion won to fight fine dust under this year’s regular budget, and more than 1 trillion of that sum has yet to be spent.
The proposed extra budget also earmarks 700 billion won for steps to enhance public safety. But surely these could be funded by adjusting items on the regular budget.
A large chunk of the planned additional expenditure -- 4.5 trillion won -- will be used to finance measures to support small businesses, shore up regional economies, create jobs and strengthen the social safety net.
It should be noted that the income-led growth policy pursued by the Moon administration over the past two years has placed heavy burdens on small firms in particular and has driven mostly low-wage workers out of their jobs.
Hong Nam-ki, the minister of economy and finance, said the extra budget could provide momentum for a recovery in the second half of the year and boost the country’s economic growth by an additional 0.1 percentage point this year.
The government has projected that the economy will grow 2.6-2.7 percent this year, but the Bank of Korea last week slashed its 2019 growth outlook by 0.1 percentage point to 2.5 percent, citing mounting uncertainties at home and abroad.
As Hong conceded, the proposed extra budget has its limits in terms of overcoming downside risks to the economy.
Rather than resorting to the use of taxpayer money, the Moon administration should discard its misguided policies and accelerate regulatory and labor reforms to forge more business-friendly conditions. This might prompt companies to increase investment and employment.
If it passes, the proposed supplementary budget will be the Moon government’s third since it assumed power in May 2017.
It drew up an 11 trillion won supplementary budget in 2017 and another worth 3.83 trillion won in 2018, mainly to create more jobs. But the extra funds did little to provide gainful employment for young people, though senior citizens benefited from an increase in temporary jobs.
Thanks to revenue surpluses, the two previous extra budgets did not raise the government’s debt. But the latest extra budget bill calls for the issuance of national bonds worth 3.6 trillion won, as falling corporate profits and slumping property markets are expected to reduce tax revenue.
There is no case for incurring government debt to draw up a supplementary budget when barely 40 percent of the regular budget has been spent.
South Korea’s national debt amounted to 38.2 percent of its gross domestic product for the three years through 2018. That figure can be expected to rise to 39.5 percent this year.
Government officials say the planned issuance of national bonds would do little harm to the country’s fiscal soundness. True, Korea’s national debt-to-GDP ratio remains low compared with those of other members of the Organization for Economic Cooperation and Development. But its national debt has increased at the fastest pace among OECD members in recent years.
It remains unclear whether the extra budget bill will pass the parliament, as the main opposition Liberty Korea Party and the three minor parties all refuse to approve it. They would be right to block the passage of this reckless spending plan, which seeks to gloss over policy failures and reap political benefits at the cost of increased burdens on future generations.