[2023 Budget] Yoon Administration Advocated 'Sound Fiscal Policy' but National Debt Surpasses 1,300 Trillion Won by 2026... Equivalent to 26 Million Won Per Person

[Asia Economy Sejong=Reporters Kim Hyewon and Son Seonhee] The budget plan for next year, prepared for the first time by the Yoon Seok-yeol administration, focuses on slowing the pace of national debt increase?which surpassed 1,000 trillion won under the Moon Jae-in administration?and stabilizing the national finances. The Moon administration’s expansionary fiscal policy was labeled as “loose fiscal management,” and the new government has set the establishment of sound fiscal management as its fundamental principle. However, national debt is expected to increase by more than 300 trillion won during Yoon’s term, leading to an unprecedented era of 1,300 trillion won in national debt by 2026.

According to the “2022?2026 National Fiscal Management Plan” announced by the Ministry of Economy and Finance on the 30th, national debt will rise from 1,068.8 trillion won based on the second supplementary budget (supplementary budget) this year to 1,343.9 trillion won in 2026, an increase of 25.7% (275.1 trillion won). Including the final year of the term, the increase in national debt during the Yoon administration is estimated to reach the 300 trillion won range.

While it is true that the Yoon administration is reducing the scale of fiscal spending compared to the Moon administration, voices are emerging that the administration’s stance of tightening the belt cannot be regarded as fiscal austerity when compared to previous administrations. The increases in national debt during the Roh Moo-hyun administration (2003?2008), Lee Myung-bak administration (2008?2013), and Park Geun-hye administration (2013?2017) were approximately 143.2 trillion won, 180.8 trillion won, and 170.4 trillion won, respectively.

The ratio of national debt to gross domestic product (GDP), which is expected to “briefly” fall below 50% next year, is projected by the government to exceed 50% again from 2024 onward, continuing the record high. Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho pointed out, “If fiscal capacity were abundant without damaging fiscal soundness, spending could have been increased with various combinations, but what the Yoon administration inherited was the world’s highest level of household debt and national debt approaching 1,100 trillion won over the past five years.” He explained that total spending for vulnerable groups had to be increased considering the difficult economic conditions without damaging fiscal soundness. Additionally, a considerable budget was added for national tasks to fulfill President Yoon Seok-yeol’s campaign pledges.

The new government has set a goal to manage fiscal revenue at an average annual growth rate of 6.6% and fiscal expenditure at 4.6% during the 2022?2026 period. However, the reality is that as total expenditure growth rates have exceeded nominal growth rates for several years and mandatory spending to address structural issues such as low birth rates and aging populations is increasing rapidly at an average annual rate of 7.5%, funds are being depleted almost as soon as they are replenished.

Professor Woo Seok-jin of Myongji University’s Department of Economics (Director of the Korean Fiscal Association) said, “Looking at previous governments, total expenditure growth rates were usually managed around the nominal growth rate.” He added, “Although the increase is lower compared to the Moon administration’s spending growth rate, since it still increased by about the nominal growth rate, it is difficult to say that the spending growth rate was significantly reduced.” He particularly pointed out that despite economic recovery, next year’s national tax revenue (400.5 trillion won) is only 3.9 trillion won (0.1%) higher than the second supplementary budget (396.6 trillion won), stating, “This reflects the effect of tax cuts under the Yoon administration, meaning that more debt issuance or other revenue sources are needed to cover the increased total expenditure.” He concluded, “Since the debt ratio has not decreased, it is even harder to regard this as ‘austerity.’”

Per capita national debt, which surpassed 20 million won for the first time last year (based on 2022), continues to rise and will exceed 26 million won by 2026. This statistic is based only on the debt owed by the central government and local governments, so the national debt burden per citizen is actually higher. The Korea Economic Research Institute has also warned that per capita national debt could exceed 100 million won by 2038.

The success or failure of the new government’s fiscal soundness efforts primarily depends on the largest-ever expenditure restructuring (about 24 trillion won). Systematic improvements through the legislation of fiscal rules are also crucial, but overcoming the current political situation of a ruling party minority and opposition party majority is necessary. Choi Sang-dae, the second vice minister of the Ministry of Economy and Finance, said, “The bill to legislate fiscal rules is planned to be submitted by late August or early September and discussed in the regular National Assembly session, aiming for confirmation within the year.”