[Editorial] United on populism

Rival parties like-minded on easing feasibility test of state-funded projects

Ruling and opposition parties fight each other all the time over everything. However, when it comes to legislation that can win over voters, they are easily united.

In a subcommittee meeting of the Strategy and Finance Committee on Thursday, they unanimously passed a public finance law revision bill.

Under the existing law, a government-financed project, such as the construction of roads, ports and airports, must undergo a feasibility evaluation if it costs 50 billion won ($38.25 million) or more. Projects costing less than that are exempt from the mandatory evaluation.

The revision bill raises the minimum exemption cost from 50 billion won to 100 billion won.

Originally the parties agreed to pass fiscal rules and the bill altogether through the subcommittee but passed only the bill. They failed to iron out differences on fiscal guidelines. The rules require the government to limit its managed fiscal deficit to within 3 percent of gross domestic product and reduce the deficit to within 2 percent of GDP if the government debt-to-GDP ratio goes over 60 percent.

The parties agreed to discuss fiscal rules further during a provisional National Assembly session next month but the prospect of legislating them is not so bright. As a condition for agreement on the rules, the majority opposition Democratic Party of Korea demands the passage of its own bill requiring the government to fund social enterprises -- a bill which has been hard for the ruling party to accept.

A feasibility analysis of a public project is essential in screening out potentially wasteful projects. The public finance evaluation system is an indispensable brake on populist politics, and it has not been revised since it was introduced in 1999.

The current system has a clause allowing for the bypassing of a feasibility analysis in certain social and economic emergency situations. Evaluation exemptions under this clause have increased, most notably under former President Moon Jae-in. The Lee Myung-bak administration exempted 91 projects costing 61 trillion won from feasibility evaluation, while the Park Geun-hye administration allowed for 94 projects costing 25 trillion won to be exempted. In comparison, the Moon Jae-in administration saw the exemption of 149 projects costing 120 trillion won. In the year running up to the 2020 general elections, the Moon government exempted 23 projects costing 24 trillion won from a feasibility evaluation.

The clause has been used too often. Then parties seek to lower the barrier of feasibility checks. Populist infrastructure projects will likely multiply.

Signs of such moves are already becoming evident. Last week, rival parties passed a special law that exempts a feasibility evaluation for a 12 trillion won project to build a new airport in Daegu.

If the bill is enacted, big-ticket infrastructure projects will be processed quickly without any feasibility analysis. Politicians will likely spout grandstanding pork barrel pledges to please voters.

Both parties cite the rapid growth of the South Korean economy compared to when the evaluation system was first introduced 24 years ago. This is an unconvincing justification for the bill. A project, big or small, can be carried out without any problems only if it is feasible and valid. Executing a costly infrastructure project without a feasibility test runs the risk of wasting taxpayer's money.

Also, the bill is ill-timed. Accumulated sovereign debt went over 1,000 trillion won as of late last year. Government debt is increasing at a speed of 100 million won per minute. On the other hand, tax revenue in January and February was 15.7 trillion won less than anticipated. If feasibility evaluation criteria is weakened, aggravation of the government’s financial condition will be inevitable.

Some evaluation items may be outdated. Calls for shorter evaluation periods may be in order. Even if so, it would be sufficient to repair only those parts of the system. The intrinsic role of a feasibility analysis as a preventative measure against tax waste must be strengthened in any case. It should never be weakened. Lawmakers must work to legislate fiscal rules if they want to ease feasibility checks on infrastructure projects.

By Korea Herald(khnews@heraldcorp.com)