[Editorial] Balancing budget by 2013

In his Liberation Day address on Monday, President Lee Myung-bak committed himself to balancing the national budget by 2013 when his five-year presidency expires. If he makes good on his promise, it will certainly be remembered as one of his greatest achievements.

Fiscal soundness cannot be emphasized too much, with its importance newly etched in stone by the impact of U.S. and European budgetary deficits on the global financial markets. The deficit-ridden United States has experienced the downgrading of its sovereign credit rating ―- a hitherto unthinkable act of humiliation for the nation whose dollar serves as the global currency.

As President Lee observed, no nation is well prepared to deal with a financial crisis when its public finances are not sound. As such, he selected 2013 as the target year of making revenues equal expenditures ― a revision to his administration’s earlier promise to balance the budget by 2013 or 2014.

When it comes to fiscal deficits, Korea is much better positioned than the United States and European countries with their sovereign credit ratings lowered recently. Korea’s ratio of national debt to gross domestic product, which is projected to rise from 36.1 percent last year to 39.2 percent in 2013, stands at a manageable level.

But the nation cannot remain complacent, given that the ratio is projected to soar to 137.7 percent by 2050 if no action is taken to improve the national pension program and the health care system. Moreover, state-owned corporations have been taking on enormous amounts of debt. Their debt is little different from national debt.

Yet, the rival political parties are competing against each other to make welfare promises ahead of the parliamentary and presidential elections, respectively scheduled for April and December next year. Balancing the budget appears to be none of their concern.

As President Lee noted, it will be necessary to increase spending on welfare as the nation is aging fast. But it is necessary for the administration to rein in growth in welfare spending if it is to balance the budget by 2013. It needs to be extra careful about the provision of new entitlements, because they can hardly be withdrawn once they are introduced.

In this regard, President Lee was right to demand that welfare subsidies be channeled to those who are desperately in need of state support, not to those who can afford to fend for themselves.