[Chong-Bum An’s Policy Diagnosis] How to Overcome the National Finance Crisis

[Financial News, October 17, 2023] Chong-Bum An (President of PERI)

[Chong-Bum An’s Policy Diagnosis] How to Overcome the National Finance Crisis

Our country’s financial conditions are not as good as those of ordinary people living at home. Every year, there is a fiscal deficit because tax expenditures are higher than revenue, so we are forced to take on debt such as issuing government bonds to cover the deficit. During the five years of the Moon Jae-in administration (2017-2021), the national debt increased by 340 trillion Korean won, from 627 trillion to 967 trillion won. The debt-to-gross domestic product (GDP) ratio increased from 36% to 47%. The debt reached half of the country’s income for the year. Compared to 3.3 and 5.2 percentage points increase of the previous two other governments, the ratio has risen by 11 percentage points under Moon Jae-in administration.

Coronavirus can’t be blamed. The fiscal deficit was already 2.8% of GDP in 2019, before the pandemic hit in 2020. Except for 4.6% in 1998 and 3.5% in 1999 and 3.6% in 2009 during the global financial crisis, the deficit has reached 3% since 2019 (5.8% in 2020, 4.4% in 2021, and 5.4% in 2022). This mess is also related to the supplementary budget. Even if it was due to the Coronavirus, there were nine supplementary appropriations during the five years of the Moon administration, totaling 137 trillion won.

The National Assembly is ultimately responsible for the country’s well-being. No matter how badly the government runs the country, the National Assembly can stop it through budget deliberations and financial audits. However, the National Assembly has been even more messed up when it comes to ‘National Finance’. When the government budget is presented to the National Assembly in September, the ruling and opposition parties fight over how much the overall budget will increase from the previous year. In this fight, there is no room for evaluation of each budget project. Therefore, once a project is started, it is impossible to reduce it with the reason that the effect is smaller than expected through evaluation. Once started, the only question is how much to increase. The National Assembly is obsessed with the year-on-year growth rate, and the next year comes, they just find reasons to make supplementary appropriations.

The National Assembly’s Special Committee on Budget and Finance is responsible for running the national finance. It is literally a special committee and is headed by 50 lawmakers who have their own standing committees and additionally serve as appropriators. However, appropriators rotate every year and most lawmakers serve once. This is not because of the workload, but because it gives them a chance to work on their district’s budget once in a while. The committee reviews the previous year’s finances in September and then deliberates on the budget until early December. The problem is that in the plenary sessions, deputies debate more about the political issues of the day than about the well-being of the country. According to my analysis of the National Assembly minutes, only 20 to 30 percent of the speeches made by committee members during the 21st National Assembly plenary session were related to the budget. Discussions on the budget, which is the fate of the people and the country for the next year, are not on the minds of the preliminary committee members.

Therefore, the first step to address this problem is to make it a standing committee. Instead of having a special committee and rotating lawmakers, let’s make it a standing committee of lawmakers who have a minimum level of expertise and responsibility for the nation’s finance.

I am worried about the 2024 budget deliberations that have just begun. We need to revive the so-called ‘Pledge Accounting Book’ that disappeared after the impeachment of president Park. Before taking office, the Park Geun-hye administration announced the “Pledge Accounting Book,” which calculated the financial resources required for all the pledges made during the 19th National Assembly election and the 18th presidential election in 2012, along with a plan for financing them, and continued to manage it after the election.

To fundamentally prevent populism in the run-up to the 22nd National Assembly election to overcome the current crisis, we need to require each party to publish a “pledge accounting book” when they make promises and keep them.

October 17,2023

<Chong-Bum An, President of PERI>