Finance Ministry urged to tackle rising national debts

The Ministry of Strategy and Finance has come under criticism for reportedly inflating its yearly growth target, which caused the government to see far less-than-expected tax revenue, opposition lawmakers said Monday.

During the National Assembly’s audit on the ministry, Rep. Yun Ho-jung of the New Politics Alliance for Democracy said the Finance Ministry has set its nominal growth target of between 6 to 7 percent over the past three years.

The main difference between real and nominal gross domestic product is that the former is adjusted for inflation, while the latter is not.

“But the nominal growth stood below 4 percent over the corresponding period. This (the wide gap between the target actual value) has brought about insufficient state tax revenue,” Yun said.

He said the revenue shortage was ascribable to the “excessive expansionary policy led by the so-called Choinomics (which refers to Finance Minister Choi Kyung-hwan) for vitalization in a short period.”

Yun also said the national debt is growing at a rapid pace though its debt-to-GDP ratio is still low compared to the average 114.6 percent of the Organization for Economic Development and Cooperation members.

His data showed that South Korea’s sovereign debt grew 12.3 percent per annum on an average from 2000 to 2013.

Its on-year debt increase has exceeded that of some eurozone countries, which suffered fiscal woes -- Portugal with 10 percent, Spain with 7.5 percent, Greece 6.4 percent and Italy with 3.4 percent.

Citing the ministry’s 2016 budget proposals, which hinted that the debt-to-GDP ratio would top 40 percent with the public debt estimated to reach 645.2 trillion won ($545.3 billion) next year, Yun said “this would mean a collapse of the nation’s physiological barrier.”

Rep. Oh Jae-sae from the same party said that “the economic policy, which seeks to boost growth with huge debt will ultimately lead to insolvency of both the nation and households.”

Denouncing the government’s lukewarm stance toward a hike in corporate taxes, Oh said it would be difficult for the government to attain a balanced fiscal account if it refuses to raise taxes on earnings of the corporates.

He criticized the authority for sitting idly while the fiscal deficit is snowballing. “The business sector has recently enjoyed a lower tax rate, which is estimated to further drop to 17.8 percent in 2019,” he said.

In contrast, Rep. Kim Gwang-lim of the ruling Saenuri Party said that “the core solution for improvement in fiscal soundness is growth.”

He claimed that it is urgent for the nation to devalue the national debt by expanding GDP.

Kim added the corporate tax hike should be delayed at least to 2017, when the efficacy of the recent revision of the tax code would be confirmed.

Concerning the employment promotion policy, lawmakers said the ministry still lacks policies to create more jobs for the youth.

Rep. Choi Jae-sung of the opposition NPAD said the state budget for young jobseekers has rather been cut by 139.8 billion won, or 12.7 percent, when the funds for employment are not included in the total spending for job creation.

The ministry said last week that it has increased the 2016 budget proposal for youth employment by 362.9 billion won, or 20.6 percent, on-year.

By Kim Yon-se (kys@heraldcorp.com)