Expansive fiscal policy, even the year after next?

Lee said that once growth recovers, tax revenues would “cover” the deterioration. That scenario is conceivable if fiscal stimulus acts as effective pump-priming and generates a virtuous cycle. But running the state on hope is not a viable option.

Suh Kyoung-ho

The author is an editorial writer at the JoongAng Ilbo.

Opinion was divided over the decision to livestream the president’s policy briefings from government ministries. On the positive side, the move enhanced policy transparency, put pressure on the bureaucracy and helped the public better understand how state affairs are run. On the negative side, many felt the president went too far, whether by unnecessarily mentioning “Hwandan Gogi,” a controversial book widely regarded by mainstream scholars as a pseudohistorical work, or by appearing to browbeat the heads of public enterprises. There were also concerns that the president’s openly stated preferences on contentious issues, such as extending national health insurance coverage to hair-loss treatment, could stifle internal debate later. Once a president’s views are aired in public, it becomes difficult for ministries to disregard them and propose more reasonable alternatives. Beyond being “more entertaining than Netflix” or gratifying supporters’ sense of political engagement, the briefings should settle into an event that genuinely improves governance.

Lee Jae Myung speaks during a policy briefing titled “A Major Economic Leap in 2026, Trusted Data,” held at the Government Sejong Convention Center in Sejong on Dec. 11. The briefing covered the Ministry of Economy and Finance, including the National Tax Service, Korea Customs Service and Public Procurement Service, as well as the Ministry of Data and Statistics. [PRESIDENTIAL OFFICE]

For me, the most striking takeaway was the reaffirmation of President Lee Jae Myung’s unwavering preference for expansive fiscal policy and a larger government. On Dec. 11, during his first round of briefings from ministries including the Ministry of Economy and Finance, Lee said, “For the time being, we have no choice but to pursue expansionary fiscal policy,” adding that “the budget for the year after next must also be drafted on the basis of an expansionary stance.” The government’s budget for next year, already finalized, totals 728 trillion won ($491.7 billion), which is an 8.1 percent increase from this year’s main budget and has been widely described as a “super budget.” Now, Lee has openly stated that the 2027 budget will also be expansionary.

Lee argued that with the economy continuing on a downward trajectory, “state efforts are needed to hit bottom and move into an upward curve.” Yet economic conditions next year are expected to improve compared to this year, with some forecasts pointing to growth in the 2 percent range. Addressing concerns over fiscal soundness, Lee said that once growth recovers, tax revenues would “cover” the deterioration and that government bond issuance would decline. That scenario is conceivable if fiscal stimulus acts as effective pump-priming and generates a virtuous cycle. But running the state on hope and optimism alone is not a viable option.

There is a saying that public finances are like a blanket that is too short. Pull it up to cover your chin and your feet stick out; cover your feet and your chest gets cold. The point is that fiscal resources cannot satisfy every demand at once, making prioritization essential. While such arguments might be dismissed when one is in opposition, it was reasonable to expect a change after Lee took office, having overseen and guided the preparation of next year’s budget from the position of ultimate responsibility. That expectation proved misplaced. People, it seems, do not change easily.

Another point worth noting was the president’s repeated instructions to expand public-sector staffing. He urged a sharp increase in personnel at the National Tax Delinquency Management Unit under the National Tax Service and repeatedly told officials not to claim they could not do their jobs due to a lack of human resources, but to request increases if necessary. Is this the mark of a president determined to “get things done,” or a willful disregard of the lesson from the Moon Jae-in administration that once the public sector expands, it is difficult to shrink again?

The announcement of expansionary fiscal policy extending into 2027 attracted surprisingly little attention. It is unclear whether that was because the Ministry of Economy and Finance’s proposal for a Korean-style sovereign wealth fund, reported the same day, seemed fresher, or because expansionary fiscal policy under the Lee administration is already treated as a given and no longer considered news. Few experts today argue for indiscriminate austerity. The broad consensus among public finance scholars is that governments should spend when the economy falters, even at the cost of deficits, but return to balanced budgets once conditions stabilize.

This is why calls for introducing fiscal rules and conducting rigorous reviews of medium-term fiscal plans persist. Yet progress on fiscal rules has been glacial, and Korea’s medium-term fiscal planning lacks binding force. The government submits its National Fiscal Management Plan, a medium-term framework, to the National Assembly alongside the annual budget, but that is all. It is neither seriously reviewed nor formally approved. The result is weak fiscal discipline and rapidly rising public debt.

The time has come to introduce a pre-budget system under which a medium-term fiscal plan is submitted to the National Assembly several months before the annual budget. That would allow lawmakers to thoroughly examine the overall size of government spending in advance. Without such structural reform, talk of fiscal discipline will remain hollow, no matter how expansive the budgets become.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.