The massive fiscal hemorrhage is mainly attributable to the second revised supplementary budget worth 62 trillion won at the end of May. At the time, the Ministry of Finance pursued the largest amount of additional fiscal planning in history “at pace” by adjusting tax revenue projections for the year by more than 50 trillion won. Thirty-two trillion of the 38 trillion won operating expenses of the revised supplementary budget were executed between the end of May and June. The rapid increase in tax expenditures relative to tax revenues puts the country’s annual budget deficits permanently above the 100 trillion won mark.
Restless, the government emphasizes budgetary stability. President Yoon Suk-yeol stressed the importance of fiscal soundness in his Liberation Day celebration speech, and Vice Premier Choo Gyeong-ho proposed a plan to legislate a set of fiscal rules aimed at to limit the share of deficits in the consolidated budget balance to 2. % in the event of a surge in debt. But it’s hard to see why the government has set this year’s overall spending – with two revised supplementary budgets – as the standard if it really intends to cut the amount of spending next year. Typically, budget planning is anchored in the main budget, from which it can be seen as either expansionary or restrictive. A reliable benchmark is needed for effective fiscal austerity.
Fiscal strength is not an option; it is one of the long-standing principles that must be followed for national governance. The International Monetary Fund predicts that South Korea’s fiscal debt ratio will exceed 100% by 2050. Moody’s is also expressing concerns about Korea’s fiscal freefall. Worse still, fiscal easing under the severity of inflation will only trigger further price spikes, falling into the trap of a vicious circle. The Korean government must reduce the number of projects and minimize new initiatives through bold structural spending reforms. It takes action, not song, to reduce budget deficits.