Fiscal Cliff Ahead of Korea
South Korea’s government budget is expected to exceed 600 trillion won (US$495.87 billion) in 2023 for the first time in history due to the government's expansionary fiscal policy. It will have been just three years after the figure surpasses 500 trillion won (US$413.22 billion) next year. However, the size of national debt is forecast to increase from 740 trillion won (US$611.57 billion) this year to 1,061 trillion won (US$876.86 billion) in 2023 as tax revenues will fall short of expenditures. As a result, the burden on the people will increase further.
South Korea's fiscal spending will climb 6.5 percent a year on average from 2019 to 2023, according to the “National Fiscal Management Plans between 2019 and 2023” released by the government on Aug. 29. The problem is that there is growing concern over a fiscal cliff as the rise in total expenditures is much higher than that in public revenues. The average growth in total expenditures, including supplementary budgets, was 6.8 percent during the Roh Moo-hyun administration from 2005 to 2007, 4.9 percent during the Lee Myung-bak administration from 2008 to 2012 and 4.8 percent during the Park Geun-hye administration from 2013 to 2017. But the figure is expected to grow to 9.5 percent this year and 9.3 percent next year since the Moon Jae-in government has taken office, showing some 9 percent of expansionary fiscal policy for two years in a row.
On the other hand, the amount of public revenues is forecast to rise 3.9 percent a year on average over the cited period. The figure has dropped by 1.4 percentage points from 5.2 percent of the government’s plans between 2018 and 2022 announced last year. The amount of annual public revenues comes to 482 trillion won (US$398.25 billion) in 2020, 505.60 trillion won (US$417.75 billion) in 2021, 529.20 trillion won (US$437.28 billion) in 2022 and 554.50 trillion won (US$458.19 billion) in 2023. Out of the total, the national tax income is expected to show an annual growth rate of 3.4 percent. In particular, the amount of total tax revenues is to shrink 2.80 trillion won (US$2.31 billion) on year to 292 trillion won (US$241.30 billion) next year as corporate taxes will plunge owing to the sluggish semiconductor market this year.
Experts express concern over the worsening fiscal soundness. With the government's expansionary fiscal policy, the deficit on the operational fiscal balance is forecast to increase from 37.60 trillion won (US$31.08 billion) this year to 90.20 trillion won (US$74.55 billion) in 2023. The operational fiscal balance excludes the four social security-related funds, including the national pension fund and employment insurance fund, from the consolidated fiscal balance. It represents the actual financial state of the government. The consolidated fiscal balance is expected to show a surplus of 6.50 trillion won (US$5.37 billion) this year, but it will switch into a deficit of 31.50 trillion won (US$26.04 billion) next year and 49.60 trillion won (US$41.01 billion) in 2023.
Korea’s national debt is also likely to grow at a rapid pace from 740.80 trillion won (US$612.28 billion) this year to 805.50 trillion won (US$665.81 billion) in 2020, 887.60 trillion won (US$733.67 billion) in 2021 and 970.60 trillion won (US$802.48 billion) in 2022. The figure is highly likely to record 1,061.30 trillion won (US$877.69 billion) in 2023, exceeding the 1,000 trillion won (US$826.92 billion) mark. The government’s debt to GDP ratio will also go up from 37.1 percent this year to 42.1 percent in 2022 and 46.4 percent in 2023.