(EDITORIAL from the Korea Times on April 8)

Worrisome Budget Deficit
Taxpayer Money Ought to Be Spent Frugally, Properly

Fiscal health has been one of the few silver linings in Korea's economic clouds,
but even that may change soon.
The Organization for Economic Cooperation and Development said Monday that Korea
might have the worst fiscal imbalance among its member countries from 2008 to
2010, with the sole exception of the deficit-swamped United States.
Korea's fiscal deficit in the three-year period was forecast to amount to 4.9
percent of the 2008 gross domestic product in the OECD report. If the extra
budget of 29 trillion won, or 1 percent of GDP, is included, the deficit-GDP
ratio will easily break the previous record of 5.1 percent set during the 1997-98
financial crisis.
Viewed positively, this shows the government, like its U.S. counterpart, is going
all out to get out of the ongoing economic recession with a bolder stimulus than
most other countries. Enabling Seoul to do so is its relatively smaller
government debt, which is expected to reach about 35 percent of GDP by the end of
this year, less than half of the 75-percent OECD average.
As for the difficult part, the public debt-GDP ratio of 35 percent doubles to 70
percent if Seoul includes the liabilities of quasi-governmental agencies, as most
industrial countries do. Moreover, the nation's public sector debt recorded a
four-fold increase over the past decade, faster than those of most other OECD
members, demonstrating the Lee Myung-bak administration's promise to pull back
the debt-GDP ratio down to the 30-percent level by 2012 will be all but
impossible to keep.
Even more problematic than the rapidly widening gap in fiscal balance are the
reasons for it, the foremost of which is the tax cuts for the wealthy top 2
percent. The Lee administration estimates the revenue loss from the abolished
aggregate real estate tax at 40 trillion won or so until they leave office, but
most private economists say it will actually amount to 100 trillion won. Most
problematic of all, the tax breaks for the rich ??? or all tax cuts ??? have
proven to be of little help in stimulating the economy.
This, along with heavy government spending on large construction projects widely
regarded as just a makeshift stimulus rather than bolstering long-term growth
potential, could prolong the recession far beyond what is deemed inevitable,
requiring yet more deficit spending, which will in turn aggravate fiscal health
further in a vicious circle.
It's difficult to understand why this government, which has long trumpeted
following global trends as its administrative slogan, is running counter to them
when it comes to economic policy. Global economists point to the three decades of
neo-liberalistic policy of market idolatry, deregulation and tax cuts as culprits
behind this economic crisis, but the Lee administration is going exactly that
way.
President Lee should distinguish economic policy from ideological affinity.
Americans are now belatedly finding the economic boom of Reagan-Bush era was
built on bubbles only to be burst by Clinton-Obama stringency.
The OECD almost simultaneously released another statistics demonstrating Korea's
income redistribution through taxation and governmental subsidies was the worst
among its 30 members remaining at one seventh the level of Sweden and France.
Needless to say, all this adds up to what the government has feigned deafness to
for so long: It should drop the tax cuts, save every penny of taxpayers' money,
and spend it where it's most needed.

(END)