[2022 Budget] Expansionary Fiscal Policy Throughout Moon Administration... National Debt Per Capita Exceeds 20 Million Won

National Debt to Reach 1,068 Trillion Won Next Year... Increased by 408 Trillion Won During Moon Administration
Total Expenditure Growth Rate Exceeds Economic Growth for 5 Consecutive Years
Spending Rises Sharply... Some in Ruling Party Already Whispering About a '3rd Supplementary Budget'

[Asia Economy reporters Son Seon-hee (Sejong) and Jang Se-hee] As the government prepares a "super-strong economy recovery" by drafting a "super-super budget" of 604.4 trillion won for next year, the burden on future generations has grown even heavier. Next year, the accumulated national debt will surpass 1,000 trillion won, exceeding half of the annual Gross Domestic Product (GDP), and the national debt ratio is expected to expand further. During the five years of the Moon Jae-in administration, spending increased sharply, and in the final year of the term, long-term investment projects such as the "Korean New Deal" and "Carbon Neutrality" were launched, leaving challenges for the next government.

◆National debt per capita to exceed 20 million won for the first time next year= According to the budget plan announced by the government on the 31st, the national debt burden per citizen next year will reach 20.61 million won. This figure is calculated by dividing the 2022 national debt amount of 1,068.3 trillion won by the domestic population of 51.83 million (based on the 2020 Population and Housing Census), marking the first time the per capita national debt has reached the 20 million won range. The national debt per household (21.48 million households) is 49.73 million won.

The increase in national debt during the current administration amounts to 408.1 trillion won (2017?2022). This is about 5.7 trillion won larger than the total increase in national debt during the combined nine years of the Lee Myung-bak and Park Geun-hye administrations (351.2 trillion won).

Including two supplementary budgets this year, the issuance of general account deficit bonds, which totaled 101.4 trillion won, is expected to decrease somewhat to 77.6 trillion won next year, according to the government. However, due to ongoing economic uncertainties caused by the COVID-19 pandemic and the upcoming presidential election next year, the possibility of additional fiscal demands cannot be ruled out.

◆Total expenditure growth rate exceeds nominal growth rate for five consecutive years= One reason for the rapid increase in national debt is that the total expenditure growth rate has exceeded the nominal growth rate for five consecutive years. This means that debt is increasing excessively compared to the pace of economic growth. The gap between the economic growth rate and the total expenditure growth rate was -2.6 percentage points in 2018, then 5.1 in 2019, 5.3 in 2020, and 4.1 in 2021. In next year’s budget, the total expenditure growth rate (8.3%) was confirmed to be significantly higher than the nominal growth rate (4.2%).

Nevertheless, the government explained that next year’s budget will establish a "fiscal virtuous cycle." The plan is to enhance fiscal soundness through the "three major fiscal innovations": ▲ restructuring fiscal expenditures ▲ advancing collaborative budgeting ▲ and a budget that resonates with the public. Ando-geol, Vice Minister of Strategy and Finance, said, "Next year will definitely be the first year to reverse the trend of expanding fiscal deficits that continued during the COVID-19 crisis and to firmly establish a fiscal virtuous cycle."

The government’s emphasis on "fiscal virtuous cycle" is based on expectations of increased tax revenue. National tax revenue, which was 285.5452 trillion won last year, increased by 28.7354 trillion won to 314.2816 trillion won this year based on the second supplementary budget. It is projected to increase further to 338.649 trillion won (a 7.8% increase) next year.

However, there are also negative factors amid economic uncertainties, such as a decrease in major tax items related to assets like real estate and stocks, which had driven the increase in tax revenue. According to the "2022 Tax Expenditure Budget" released alongside the budget plan, next year’s national tax exemptions are expected to rise by about 3.6 trillion won to 59.5208 trillion won compared to this year’s 55.9366 trillion won. Although the exemption rate slightly decreased (from 14.3% to 14.2%) due to increased tax revenue, the absolute scale of tax expenditures continues to grow.

◆"Third supplementary budget?" Government draws the line, but the ruling party may distribute more money ahead of the presidential election= Despite the sharp increase in government spending, some political circles are already discussing the possibility of a "third supplementary budget." A representative from the Democratic Party of Korea said, "Support for self-employed people affected by the prolonged fourth wave is still insufficient," adding, "To execute within the year, the third supplementary budget should be prepared at least by late September to early October."

The government has drawn the line. Ando-geol, Vice Minister of Strategy and Finance, said, "Since the situation such as the level 4 social distancing in the metropolitan area continues, the need for compensation for losses to self-employed people is expected to increase," but added, "We are considering using existing budgets and related fund surpluses and do not think it is necessary to resort to a supplementary budget."