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Questions about the budget

An extra budget is aimed for temporary and emergency relief. The spending mostly should go to individual projects.
June 09,2017
The supplementary budgeting has greater political design than a regular fiscal spending plan. Votes can be earned through bigger spending. The government up until the Kim Dae-jung administration habitually proposed an extra budget. The government and ruling party pitched that the spending was aimed to help the people. The opposition squeezed some of the money for its constituency in return for going along with the plan. Bills proposing an uptick in fiscal spending passed the legislature without trouble. Then an alarm was raised due to thinning national coffers. Then-President Roh Moo-hyun in 2006 imposed stricter guidelines on extending the supplementary budget. It can be created in cases of war or major natural disasters, recession, mass-scale layoffs, and changes in inter-Korean relationship. Constraint was levied on in-between annual budgets.

The administration under President Moon Jae-in who inherits much of the legacy and policies of Roh, under whom he had served as chief of staff, was ordered to immediately create a supplementary budget. The Ministry of Strategy and Finance said the extra budget was necessary to address record-high youth unemployment. The first-quarter data suggest the economy was doing better than expected. But that alone cannot be argued against raising the supplementary budget. But there are bigger risks to this year’s increased budget plan.

First, it doesn’t meet the original design of a supplementary budget. An extra budget is aimed for temporary and emergency relief. The spending mostly should go to individual projects. It is not fit for fixed expenditures like labor costs. An increased quota on public officials would dent public finance for years and even decades. The government claims the extra hiring of 12,000 public employees would help to increase decent-paying jobs. Officials argue it cannot be compared with simple labor costs. But the plan should be included in the regular fiscal plan, not an extraordinary budget.

Secondly, it is an irregular move that can jeopardize the integrity in the state balance sheet. The primary purpose of an extra budget is to increase jobs in the public sector. The recruitment of 12,000 public employees is part of Moon’s campaign pledge to create 810,000 public-sector jobs. But just 8 billion won ($7.14 million) has been appropriated for this year’s hiring out of the proposed 11.2 trillion won supplementary budget scale. The expenditures from next year would snowball. The first-year annual pay of 34 million won for seventh-grade public employees would cost at least 408 billion won a year. Over the next five years, the payroll would stretch to 170,000. The labor costs would grow along with their seniority. In three to four decades, the cost would rise to 120 trillion won. It is wrong to start the colossal spending plan via an out-of-the-ordinary budget.

Budget bureaucrats call this method pushing the elephant into a refrigerator starting with its nose. If it can squeeze in small parts of an elephantine project into the budge, it is on a path to push ahead with a colossal project. Budget experts abhor such irregular methods. They try to block it. Kim Dong-yeon, nominee for the finance minister, is a budget expert, and yet he spearheads the campaign.

We should not aim to put the brakes on the new administration eager to kick-start the economy through a bigger budget. Compared with previous extra budget proposals, the plan is well-focused. A compromise is called for. The opposition camps oppose the spike in the public employees’ quota over the burden on public finance. Yet taxes cannot be increased to bump up the number of public employees. The spending instead should be separated out of the supplementary budget for further review and discussions.

The ruling party wants to push ahead with the original plan as it had been a part of the campaign promise. But campaign platforms aren’t absolute. The ambitious pork-barrel project of renovating the four major rivers also had been former President Lee Myung-bak’s campaign pledge. It caused controversy throughout his term and has recently been revisited on environmental concerns.

Moon has also commanded an internal investigation behind the hasty installment of the U.S. Terminal High Altitude Area Defense system. Although it was an honorable pledge, creating 810,000 public-sector jobs is a highly risky move as it could cost the country more than 100 trillion won over the next several decades. The president must seriously restudy his campaign platform.

JoongAng Ilbo, June 8, Page 34

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae