ED Snowballing fiscal deficit

Candidates hit for making populist pledges

Korea's fiscal deficit has surpassed 100 trillion won ($83 billion), while its national debt soared to 240 trillion won as the country was hit by the COVID-19 pandemic during the past two years. According to the Ministry of Economy and Finance Sunday, the nation registered a deficit of 71.2 trillion won and 30 trillion won in consolidated fiscal balance in 2020 and 2021, respectively.

Last year, the nation posted a 4 percent growth in gross domestic product (GDP) and raked in an additional 61.4 trillion won in tax revenues than previously estimated, mainly boosted by heavier taxation on soaring housing prices. Despite the rise in tax revenues, the fiscal deficit has continued to increase due mainly to the Moon Jae-in administration's “big spending” measures.

As a result, the national debt is estimated to have reached 939.1 trillion won last year, an increase of 240 trillion won from the pre-COVID-19 era. Worse still, the deficit is likely to increase further this year, given the supplementary budget bill under discussion at the National Assembly, heralding 70 trillion won in fiscal deficit and 100 trillion won in national debt for 2022.

What matters is the high chance that asset markets involving real estate and stocks will become weak this year coupled with growing uncertainties in the global economy, darkening the prospects for exports by domestic enterprises. Against this backdrop, it seems difficult to expect a huge surplus of tax revenues for the year as seen in 2021.

Some experts even warn that this year's tax revenues might not meet what the government estimated earlier. They even express concern that the fiscal deficit will surpass 200 trillion won early next year should the coronavirus pandemic show no signs of abating. If that is the case, the nation will have to issue sovereign bonds to make up for the deficit. Despite the dismal forecast, major presidential candidates are taking flak for making populist pledges without any detailed plans to finance them.

According to the Korea Manifesto Center, more than 300 trillion won will be needed to implement some 270 pledges made by Lee Jae-myung, the presidential candidate of the ruling Democratic Party of Korea. Yoon Suk-yeol of the main opposition People Power Party offered some 200 pledges that will require 266 trillion won. Such pledges will lead to a snowballing of the national debt.

However, the candidates have failed to present any measures to increase tax rates or reduce spending, raising concerns that the country will face economic difficulties after the election. More worrisome is the fact that the candidates are desperate to win the election at any cost, offering numerous pledges that will require a huge amount of money. The nation will likely suffer from the fallout of the March 9 election regardless of whoever wins. The rival candidates should explain how they will carry out their pledges without widening the fiscal deficit further.