Questions raised about extra fiscal spending plan

Questions are being raised about the relevance of the government’s move to draw up a supplementary budget this year to cope with the country’s deteriorating unemployment problem.

Critics note President Moon Jae-in’s administration is looking for an easy way to tap into taxpayers’ money to bolster employment at the risk of neutralizing fiscal disciplines.

Finance Minister Kim Dong-yeon, who doubles as deputy prime minister for economic affairs, said last week that the government is working on a set of measures to create more jobs especially for young people by mobilizing all policy tools.

“If needed, an extra budget will not be ruled out,” he told reporters.

Another ministry official later suggested a supplementary budget bill would be submitted to the National Assembly sooner rather than later.

It would be a second extra budget to be introduced by the Moon administration in less than a year.

The administration went to extra lengths to get parliamentary approval on an 11 trillion-won ($10.2 billion) extra spending plan designed to bolster employment two months after it was launched in May.

During his election campaign, Moon pledged to make creating more jobs a top priority. One of the first things he did after taking office was to install electronic boards at his office, which have been updated with the latest data on employment.

To his embarrassment, however, unemployment has continued to worsen.

Recent data from Statistics Korea showed the number of jobless people rose by 12,000 from a year earlier to 1.02 million in January, the highest for the month since 2010.

The youth unemployment rate was up 0.1 percentage point on-year to 8.7 percent last month. The rate stood at 9.9 percent in 2017, the highest level since 1998 when the Korean economy was struggling to stay afloat in the aftermath of a devastating foreign exchange crisis.

In January, Moon urged his aides to exert all-out efforts to ease youth unemployment, which he called a “national disaster.”

The envisioned supplementary budget is predicted by experts to reach up to 15 trillion won, with the full range of measures to create jobs, which are set to be unveiled next month, expected to be worth as much as 20 trillion won.

A continuous increase in tax revenues might allow financial policymakers to argue additional fiscal expenditures would not undermine the country’s fiscal soundness.

The government collected 265.4 trillion won in national taxes last year, 23.6 trillion won more than originally estimated.

Critics say the Moon administration is repeatedly resorting to the use of taxpayers’ money to cope with the unemployment problem exacerbated by its ill-conceived policies, including a sharp increase in the minimum wage.

“The government is taking only stopgap measures without efforts to improve economic fundamentals as corporate vitality is weakening under increasing tax burdens,” said Cho Dong-geun, a professor of economics at Myongji University.

Economists say it is not necessarily desirable to collect more taxes than planned, given extra revenues could have been used more efficiently in the private sector.

Concerns have also been raised that Korea has become increasingly addicted to fiscal spending as an easy way to bolster the economy.

The country has seen supplementary budgets implemented in the past five years except for 2014.

An official at the Ministry of Strategy and Finance, speaking on condition of anonymity, conceded it is hard to resist the “temptation of a supplementary budget,” as extra fiscal spending is accurately reflected in annual economic growth rates in proportion to its size.

Critics say the habitual implementation of an extra budget is crippling the fiscal management law, which limits cases for drawing up a supplementary budget to a war, natural disaster and other grave changes in internal and external situations.

Opposition lawmakers also suspect that the move to draw up an extra budget just two months into the new fiscal year may be politically motivated to strengthen voter support for ruling party candidates in the June local elections.

Rep. Choo Kyung-ho, a ranking member of the Liberty Korea Party at the parliamentary finance committee, said his party would do all it could to block the passage of a “politics-driven supplementary budget.”

Many economists indicate pro-labor measures taken by the Moon administration to drive income-led growth has resulted in increasing corporate costs and reducing jobs.

They say the government should accelerate efforts to eliminate regulations and reform the labor market before adhering to more fiscal expenditure to ease unemployment.

In his meeting with reporters last week, Kim said the administration’s employment policy will focus on creating more jobs for youths at small and medium-sized enterprises and in new service sectors and helping them set up startups or secure more opportunities to work abroad.

But the Moon government’s anti-business policies and half-hearted deregulation have led many SMEs to cut their payrolls to reduce costs and hampered the development of service industries.

Its efforts to boost employment have also been limited by its tighter regulations on big businesses that should assume a key role in creating quality jobs preferred by young job-seekers.

Lee Chang-yang, a professor of business administration at the Korea Advanced Institute of Science and Technology, noted job programs subsidized by government funds could hardly be expected to help provide more decent jobs for young people.

By Kim Kyung-ho 
(khkim@heraldcorp.com)