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Publication Date : 11-04-2014
South Korea's Finance Ministry’s announcement this week that Korea’s national debt rose to a record-high 1.117 quadrillion won (US$1.06 trillion) in 2013, up from 902 trillion won a year earlier, should alarm candidates in the June local elections, who have been competitively pouring out populist campaign pledges.
The figure accounts for nearly 80 per cent of the country’s gross domestic product. The fiscal account, excluding social security funds, posted a 21.1 trillion won deficit, the largest since 2009, when the government sharply increased spending to cope with the global financial crisis.
A recent analysis by financial experts estimates that it will take more than 30 trillion won to implement the promises made by candidates so far. What is worrying is that contenders from the ruling and opposition parties alike are likely to put forth more populist pledges as the elections draw near.
Most of these pledges are not accompanied by specific funding plans. For example, all aspirant candidates for Gyeonggi governor are vowing to push to build an express railway across the province without suggesting concrete measures to finance the project, which is estimated to cost 11.8 trillion won. Kim Sang-gon, a former chief of the provincial education office who is running for the gubernatorial post, has also put forward a free bus service programme. Few experts give credence to his plan to raise the necessary funds of about 300 billion won by readjusting expenditures.
Provincial and municipal governments across the country are already reeling under heavy debt that has piled up in the process of funding populist pledges made in the previous local polls, including free school meals for all students. According to figures from the Ministry of Security and Public Administration, debt owed by local administrations stood at 27.1 trillion won at the end of 2012. But estimates by private-sector experts put the actual amount, including debt held by local public corporations, at more than 126 trillion won.
The fiscal crunch will be exacerbated if new provincial and municipal government heads push for costly projects. The implementation of the populist pledges will also distort the spending of limited financial resources, cutting support for poorer households, children and the elderly to finance universal benefit programmes.
Keeping these problems in mind, voters should not be attracted to candidates’ rosy but irresponsible promises. They should be reminded that, in a strict sense, there are no free benefits, as they all have to be covered by taxpayers’ money. Candidates who have put forward a package of populist pledges may have to be urged to ensure they will give up their pay or receive a symbolic small salary if elected.
It is regretful that the National Assembly has delayed the passage of the “pay-as-you-go” bill that was introduced in 2012. The measure, which makes it obligatory to suggest feasible and specific methods to fund proposed projects, will help prevent local election candidates from trying to court voters with irresponsible promises. While putting the bill on the back burner, lawmakers have been preoccupied with enacting a flood of bills that need fiscal support over the past several years.
Finance Ministry officials said the sharp increase in national debt stemmed mainly from the hike in the estimated amount of money the government would have to pay to fill deficits in pensions for public servants and military personnel under new accounting rules. But this explanation only heightened the urgent need to reform the public pension system that can no longer be shored up by taxpayers’ money.
It’s time for Korea to pull out of its growing debt addiction. The central government, lawmakers and local administrations alike should accelerate efforts to prevent the problem from holding back the economy.