[fn Editorial] Snowballing National Debt, Preemptive Action Needed Before National Credit Rating Falls

The speed at which national debt is increasing is alarming. According to the National Assembly Budget Office, national debt reached 1,218 trillion won by the end of June this year, a sharp increase of 77 trillion won from the end of last year. At this rate, it could easily surpass the 1,300 trillion won mark by the end of the year. After surpassing the 1,000 trillion won mark for the first time in 2022, it has surged by about 20% in just three years. The cost of national bond interest also increased by about 10 trillion won in four years, from 18.6 trillion won in 2020 to 28.2 trillion won last year. This year, it could exceed 30 trillion won for the first time in history. Concerns about fiscal deterioration due to the increase in national debt are not new. Under the Roh Moo-hyun administration, it increased by 164 trillion won, followed by Lee Myung-bak (143 trillion won) and Park Geun-hye (183 trillion won), and then sharply increased by 442 trillion won under the Moon Jae-in government. Even if national debt increases slightly, it is better if the economy is good and tax revenue is high. However, now, amid a global economic downturn and low growth, there are warnings that the potential growth rate, which measures the basic strength of our economy, could fall to the 0% range.

The increase in national debt is inevitable because the costs of pursuing various national projects are financed through the issuance of national bonds. The problem is that the Lee Jae-myung government is only thinking about spending money, even though tax revenue is insufficient due to the economic downturn, by promoting an expansionary fiscal policy for economic stimulus. On the 17th, the President visited a traditional market in Seoul and said, "It's fortunate that the market is revitalized thanks to the (first) consumption coupons." At the chief and assistant meeting held on the 14th, he ordered, "The effect of the livelihood recovery consumption coupons is gradually appearing," and "I think a second domestic demand boost is needed." Many local governments have already started preparing their own supplementary budgets for the second consumption coupon distribution, and the Ministry of the Interior and Safety is expected to announce the criteria for the second consumption coupon distribution in early September.

The President also opened the possibility of issuing large-scale deficit bonds at the recently held 'National Finance Meeting', saying, "If you can harvest a bag of rice in the fall by borrowing seeds, shouldn't you borrow and sow the seeds?" While stimulating domestic demand is necessary in an economic downturn, the more difficult the financial situation, the more spending should be reduced. If the cycle of promising higher interest to pay off debt (national bonds) and borrowing again continues, it is inevitable that the national treasury will soon be empty. Even if you urgently borrow seeds and sow them, if the harvest is below expectations, it might have been better not to sow them at all. If the government continues to borrow recklessly, the burden will inevitably fall on future generations. Now is the time to exercise extreme restraint on populist policies and save as much as possible with the mindset of squeezing a dry towel. The 'Fiscal Rule Legislation', which has ended as an empty promise under successive administrations, should also be expedited. If we continue to stand by, we never know when the downgrade of South Korea's credit rating, which is directly linked to national credibility, will become a reality. Moreover, the tax increase discussions raised by some should be the last resort as they can exacerbate confusion.