How to empty the state coffers fast

egardless of winning or losing an election, a bad policy and legacy must be corrected.

Lee Sang-ryeol

The author is an editorial writer of the JoongAng Ilbo. The National Assembly has once again deferred the passage of a revised bill to tighten budget rules to ensure fiscal integrity and sustainability. Its dilly-dallying underscores the shameful state of the legislature. It shouldn’t have neglected the bill if it really cares for the country’s future and the coming generations.

Public finance has already received numerous warnings. National liabilities hit 1,068 trillion won ($804.8 billion) at the end of last year. The gain in government debt against the gross domestic product (GDP) was the fifth largest among 35 developed countries, according to the International Monetary Fund (IMF). At the current rate, national debt per person in the working population between 15 to 64 would hit 105.04 million won in 2040 from 29.14 million won last year and reach 219.55 million won by 2050, according to the Korea Economic Research Institute. The welfare bill would stretch in line with the world’s fastest aging process while tax revenue will fall due to the thinning population. The current generation will be leaving the future generation a heavy debt legacy.

A crisis like the Covid-19 pandemic will certainly cause another fiscal expansion. Public finance therefore must be managed strictly beforehand. The fiscal rule is necessary to keep watch on government spending. The bill calls for capping fiscal deficit within 3 percent of the GDP. Last year’s deficit was 5.4 percent versus the GDP. The ceiling would force politicians and government to be more discreet in their budget proposals.

Most countries have a ceiling on debt. Fiscal rules are in force in 105 countries. Among 38 members of the Organization for Economic Cooperation and Development (OECD), only Korea and Turkey lack one.

The adoption of a fiscal management mandate was floated towards the end of the previous Moon Jae-in administration during which government debt rose sharply. Many agreed a ceiling was necessary to regulate debt increase. The work gained force when the conservative government under President Yoon Suk Yeol gained power.

But the opposition-dominated National Assembly stayed lukewarm towards the move. Neither the governing nor the opposition party was willing. The reason is simple. If a strict fiscal rule is adopted, they won’t be able to pursue populist policies especially with the parliamentary election coming next April.

The Democratic Party (DP), the governing power from 2017 to 2022, should have taken the initiative if it really felt any responsibility for the alarming stretch in fiscal debt. While the DP was in power, national debt increased by a whopping 400 trillion won to cause havoc on fiscal integrity. Moreover, the majority party holds the key to any bills. No bill can pass the legislature unless the DP agrees. But the party did not take the initiative, which suggests it still feels no regret over its profligacy in the past five years.

Elections, the flower of democracy, judge policy failures of the government. The defeated party could believe that it already paid as it lost the election. But that cannot be enough. The repercussions of a failed public policy seep into the society even when the governing power changes.

Another major folly of the past liberal administration and the DP was their excess regulations on real estate. The punitive property taxes, the eradication of private rent business, the forced guarantee on residential rent up to four years, and the 5 percent cap on rent prices backfired, as they rather helped reduce rent supplies and drive up rent prices. Many experts had warned of such side effects. Three years afterwards, homeowners live with their home value falling below rent prices while tenants live with the fear of losing their long-term deposits due to prevalent fraud.

The hasty push to phase out nuclear reactors by exaggerating potential disasters from nuclear power purely on unscientific grounds has caused a pricey toll. The cost of weaning off nuclear power totaled 22.9 trillion won over the last five years. Another 24.5 trillion won would have to go to waste from this year through 2030, according to the Seoul National University Nuclear Energy Policy Center. Although the phase-out policy has been reversed by the conservative Yoon Suk Yeol administration, the bill from deferring or calling off reactor construction and early decommission will grow continuously. Of course, the price has to be paid by taxpayers.

Policymakers often say that their intentions were benign even if the results were bad. If that’s true, bad policies should not be repeated. The DP under former liberal president Roh Moo-hyun introduced the comprehensive property ownership tax. The tax was tightened under another liberal president Moon Jae-in. The party is turning away from the bill aimed at restoring our fiscal integrity. Regardless of winning or losing an election, a bad policy and legacy must be corrected. Without such responsibility from politicians, our society has no future.