(EDITORIAL from Korea Times on Sept. 1)

Ultra-tight budget

What good is fiscal health if it weakens economy?

President Yoon Suk Yeol appeared proud and resolute after his administration proposed the most austere budget in nearly two decades on Tuesday.

"We have shifted from the previous government's 'spending-solves-all' mentality to restoring fiscal health," Yoon told a Cabinet meeting. The conservative leader accused his progressive predecessor of "reckless spending leading to snowballing debt."

The Yoon administration's 657 trillion won ($495 billion) proposal for FY 2024 marks 2.8 percent growth from this year's 639 trillion won, the lowest in 18 years. It can be called an "ultra-tight" budget, compared to a 5.1 percent rise this year and the 9-10 percent annual growth witnessed during the Moon Jae-in government.

Few can oppose financial soundness, especially when major governments are "living in a fiscal fantasyland," as the London-based The Economist put it recently.

The problem is whether fiscal retrenchment is suitable here and now.

Korea's economy has been struggling, with its growth rate remaining at the 1-percent range for this year and next, the lowest since the 1997-98 Asian financial crisis. Due to the robust U.S. economy and the reversal of interest rates between the two countries, Korean policymakers cannot use monetary policy to boost the sagging economy. Korea Inc. needs pump-priming water, which can come only from state coffers.

Yoon also lamented about the "near broke" situation of state finances and the accumulated debt of 1,000 trillion won under his predecessor. However, despite the inevitable increase in handouts due to COVID-19 and other adverse challenges, Korea's government debt is in good shape. Officials worry that the nation's public debt will soon account for 50 percent of its gross domestic product. However, Japan's net debt is already 150 percent of its GDP, and China will soon reach there. Korea's budget deficit target is 3 percent of GDP. The corresponding rate in the U.S. may hit 7 percent in 2030.

Even with tight spending, the budget deficit will amount to 3.9 percent of the country's estimated GDP next year, way beyond the government's target. This government is unlikely to hit its deficit restraint goals due to big holes in tax revenue. These are, in turn, ascribable to tax cuts for big businesses and wealthy people. That also runs counter to most advanced economies, which move to introduce a wealth tax or a windfall tax to narrow the wealth gap, while blindly pursuing non-existent trickle-down effects.

One can't figure out why Yoon has adopted such contradictory and ineffective policies of combining fiscal austerity and tax cuts.

Two possible reasons arise. One is his obsession with the conservative ideology of pursuing small government and private sector-led growth. The other is Yoon's ABM (anything-but-Moon) mentality.

Yoon says contemporary Koreans must not saddle future generations with heavy financial burdens. Sounds reasonable. However, which will be more burdensome ? a robust expanding economy with some debts or a dying and shrinking one without debt?

Nothing shows this better than the government slashing the R&D budget by almost 17 percent. It is the first such cut since 1964. Korean governments, liberal or conservative, have never cut R&D budgets ? even during the Asian and global financial crises. The continuous investment into research and investment has kept Korea from falling back into the middle-income trap. Yoon cited ineffective, overlapping subsidies for the "scientific cartel." We don't know whether there is such a cartel ? one of Yoon's favorite words, which he uses to refer to any group he dislikes ? but no country can prosper by ignoring scientists. A country with a broken industrial basis will be the last thing future generations will want.

Yoon also "emphasized" that his government will sharply increase spending on seafood product inspections to 740 billion won so that "people can enjoy our seafood with confidence," regarding the ongoing controversy over the Fukushima wastewater release. Most Koreans will ask why their government should spend more than $10 per taxpayer annually because of Japan's problematic act.

The economy is the last area where the president should apply his "new right" ideology.

Far-right populism is no less dangerous than far-left populism.

Source: Yonhap News Agency

scroll to top