Increasingly difficult life

The Korea Times

The Korea Times

Opinion

Mon, December 4, 2023 | 06:48

Editorial

Increasingly difficult life

Posted : 2023-05-31 16:30

Updated : 2023-05-31 18:42

Government must loosen purse strings to help the poor

A double whammy of the economic slowdown and inflation is having an impact on low- and middle-income households.

According to Statistics Korea's household survey, six in 10 families saw their real, or inflation-adjusted, income stagnate or set back in the first quarter.

Those in the bottom 20 percent of the income bracket suffered a monthly deficit of 461,000 won ($350) on average, the largest since 2006, when the government began to compile related figures. The Economic Misery Index, (the jobless rate plus inflation) soared to 8.8, the highest since 1999 after the Asian currency crisis.

All this occurred under a government whose slogan is to revive the public's livelihoods. Economic officials predict the situation will turn around in the second half of the year, but private economists say otherwise. This likely indicates that things will worsen for many months before getting any better.

What went wrong?

Granted, the Yoon Suk Yeol administration started amid an unfavorable economic environment of the "three highs" ― a high-interest rate, high inflation and weak currency (high exchange rate against the U.S. dollar). But Yoon and his economic aides made bad situations worse. Instead of bolstering the sagging economy, they tightened budget spending under the pretext of "fiscal soundness."

Even more incomprehensibly, they granted tax cuts to large companies and wealthy individuals. That sharply reduced tax revenue, making it even harder to restore fiscal health, slashing already meager welfare benefits for the poor, and widening the income and wealth gap. Yoon still seems to believe in the "trickle-down effect," which global experts have concluded does not exist. Instead, the global trend is toward a "trickle-up effect." If you give the money to the poor, they will help to revive the economy.

The incumbent government's lack of an economic philosophy pushes it to follow in the footsteps of failed conservative governments of the past, such as under Lee Myung-bak and Park Geun-hye. As the world exits the COVID-19 pandemic, major economies, including the U.S., are returning to tax hikes and big government. Korea Inc. stands out by sticking to small government and fiscal austerity. State finance must be opposite to family finance. Families reduce spending when the economy is bad. However, the economy worsens if the government tightens the purse strings during a slump.

Of course, contemporary Koreans should not leave too much debt to their descendants, as the Korean president says. But the good intention could be penny-wise and pound-foolish in a worst-case scenario.

Suppose the nation fails to invest in essential infrastructure and education. In that case, it will leave industries in a state of deterioration and cause society to decline. More so, considering Korea's government debt is one of the lowest among the 22 most advanced economies, while its household debt is almost the highest. More money must move from state storehouses to the people, especially the most vulnerable and underprivileged.

World-renowned economist Chang Ha-joon asks why Koreans, living in a country with a strong economy and culture, should be among the unhappiest. He advises policymakers to raise the welfare level and public consumption. Chang also calls for working more productively, not harder and longer.

All these issues have a lot to do with sound economic policymaking. Low-income earners may overlook tax credits for giant conglomerates like Samsung Electronics in order to maintain a strong position in the strategic semiconductor sector. But they never understand similar benefits for people with multiple homes and massive stock holdings. If the government must decide between issuing more bonds or withdrawing tax cuts, its choice couldn't be more apparent.

Korea is in a vicious circle of low tax rates, tight budget and small welfare spending. The state budget is barely a quarter of its gross domestic product, while the share is nearly half, in major economies. The nation must turn to the virtuous cycle of more taxes, a larger budget, and better welfare.

Korean economic bureaucrats call themselves "soulless people," shifting their stance according to the inclinations of Korea's elite.

The prosecutor-turned-president ought to change his economic tutors. Yoon must tell his new economic team to formulate an extra budget and spend it to create "trickle-up effects."