Deficit Debt Repaid by Taxes Hits 600 Trillion This Year... Public Pension Spending Approaches 60 Trillion

63.1% of Total National Debt... Interest Costs Increase from 18 Trillion to 21 Trillion
Annual Growth in Expenditures of Four Major Public Pensions Including 국민연금 Intensifies

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki briefing on the 2022 budget proposal and the 2021-2025 National Fiscal Management Plan at the Joint Briefing Room of the Government Seoul Office in Jongno-gu, Seoul, on the 31st of last month. Photo by Kim Hyun-min kimhyun81@

[Sejong=Asia Economy Reporter Moon Chaeseok] Deficit national debt, which must be repaid with taxpayers' money, is expected to surpass 600 trillion won this year and break through 900 trillion won by 2025. Interest costs due to deficit national debt exceed 14 trillion won this year and are projected to approach 18 trillion won in 2025.

Expenditures for the four major public pensions, including the National Pension, will approach 60 trillion won next year. The deficit amount that the government must bear will increase to 8.7 trillion won.

Deficit Debt Surpasses 600 Trillion This Year and 900 Trillion in Four Years

According to the 2021-2025 National Fiscal Operation Plan and National Debt Management Plan submitted by the government to the National Assembly on the 5th, of the year-end national debt forecast of 965.9 trillion won, deficit debt accounts for 63.1%, or 609.9 trillion won. National debt is divided into deficit debt, which must be repaid using taxes collected from the public, and financial debt, such as loans (National Housing Fund) or foreign currency assets (Foreign Exchange Stabilization Fund), which have corresponding assets and can be repaid independently.

Deficit debt must be repaid with taxpayers' money. Unlike financial debt, which only requires bond recovery and does not need separate funds for repayment, deficit debt is expected to increase from 609.9 trillion won this year to 686 trillion won next year, 766.2 trillion won in 2023, 854.7 trillion won in 2024, and surpass 900 trillion won to reach 953.3 trillion won in 2025.

The proportion of deficit debt in national debt will also increase from 63.1% this year to 64.2% next year, 65.2% in 2023, 66.2% in 2024, and 67.7% in 2025. Interest costs will rise along with the increase in deficit debt.

Interest on the Public Fund Management Fund (PFMF), generated by issuing government bonds including deficit debt, is 14.7704 trillion won this year. PFMF interest will increase to 16.4263 trillion won next year, 16.9596 trillion won in 2023, 17.1108 trillion won in 2024, and reach 17.7566 trillion won in 2025. Interest on the Housing and Urban Fund is projected at 1.1408 trillion won this year, 1.2292 trillion won next year, 1.3721 trillion won in 2023, 1.0877 trillion won in 2024, and 950.8 billion won in 2025. Interest on the Post Office Savings Special Account is estimated at 1.0793 trillion won this year and is expected to be 980.1 billion won annually from next year through 2025.

Total interest expenditures, including these and other interest, are projected at 18.3346 trillion won this year. Interest expenditures are expected to increase annually to 19.6884 trillion won next year, 20.4611 trillion won in 2023, 20.4096 trillion won in 2024, and 20.9912 trillion won in 2025.

8.7 Trillion Won for Covering Deficits of Four Major Public Pensions Including National Pension

Expenditures for the four major public pensions, including the National Pension, will approach 60 trillion won next year. The amount the government bears to cover fund deficits and other purposes will increase to 8.7 trillion won.

The government projects that expenditures for the four major public pensions?National Pension, Government Employees Pension, Private School Teachers Pension, and Military Personnel Pension?will reach 59.2869 trillion won next year. This is a 6.2% increase compared to this year's 55.8236 trillion won.

The increase in expenditures for the four major public pensions is accelerating. Expenditures are expected to be 65.1174 trillion won in 2023, 70.0614 trillion won in 2024, and 75.3616 trillion won in 2025, with an average annual growth rate of 7.8% over four years. Considering that the average growth rate of fiscal expenditures during the same period is 5.5%, this is a very rapid pace. The four major public pensions are mandatory expenditures regulated by law. The government cannot easily control the pace of statutory expenditures, which reduces fiscal flexibility and makes flexible responses to situations difficult.

National Pension expenditures are expected to exceed 30 trillion won for the first time next year, reaching 30.9085 trillion won. Government Employees Pension follows with 20.13 trillion won, Private School Teachers Pension with 4.5928 trillion won, and Military Personnel Pension with 3.6557 trillion won. The National Pension's average annual expenditure growth rate from 2021 to 2025 is the highest at 8.5%. Private School Teachers Pension has an average annual growth rate of 8.2%, Government Employees Pension 7.4%, and Military Personnel Pension 3.9%.

The Government Employees Pension deficit alone is 3.073 trillion won next year. It is expected to increase to 5.0204 trillion won in 2023, 6.0132 trillion won in 2024, and 7.075 trillion won in 2025. The government will bear 4.7906 trillion won next year in the form of deficit coverage and employer contributions. This is a representative case where pension deficits lead to taxpayer money being injected.

The Military Personnel Pension is also expected to run a deficit of 2.9077 trillion won next year. The amount injected as deficit coverage and government contributions is about 2.922 trillion won, similar to the deficit size. Many military personnel retire between ages 45 and 56 due to age and rank retirement systems. They receive retirement pensions and then survivor pensions, so the deficit is larger relative to the fund size. The government will also pay 987.7 billion won to the Private School Teachers Pension next year. Although the Private School Teachers Pension will barely maintain a surplus until next year, it will turn into a deficit afterward, increasing government burdens.

The fiscal deficit of Government Employees, Military Personnel, and Private School Teachers Pensions excluding the National Pension will surge from 5.6013 trillion won next year to 8.9128 trillion won in 2023, 9.6832 trillion won in 2024, and 11.2498 trillion won in 2025. Accordingly, the amount the government bears for the four major public pensions in the form of deficit coverage and contributions will reach 8.7106 trillion won next year. Compared to this year's 8.0577 trillion won, it increases by nearly 700 billion won. Government contributions to the four major public pensions will be 9.275 trillion won in 2023, 9.8114 trillion won in 2024, and increase to 10.4381 trillion won in 2025.

The rapid increase in public pension expenditures is due to aging and low interest rates. As the population ages, pension payments increase while the proportion of young and middle-aged contributors decreases. The prolonged low interest rate era has increased the proportion of people choosing pensions over lump-sum retirement payments, leading to higher pension expenditures. This is one of the reasons expenditures exceed contributions. When expenditures exceed contributions, pension fund insolvency leads to the inevitable injection of taxpayers' money.