[Editorial] 821 Trillion Won Mega Budget Finalized, Raising the Need for Greater Fiscal Vigilance

The government finalized next year’s budget on the 1st, setting total spending at 821 trillion won, up 12.8% from this year. That is the largest amount ever. With a semiconductor boom sharply boosting tax revenue, total income is also expected to exceed 880 trillion won. Based on this windfall, the government said it will focus investment on three major mega-projects, including semiconductors, as well as youth, regional development, and future growth engines. At the same time, it plans to restructure spending by more than 100 trillion won, including reforms to the Local Education Grant system tied to national tax revenue, and establish a 162 trillion won future response fund. The direction of cutting unnecessary projects and concentrating on future investment is worth recognizing.
But the global economy is now suffering the aftereffects of excessive liquidity. The astronomical amounts of money that countries unleashed after COVID-19 have come back as an inflationary backlash. High interest rates, introduced to tame prices, are once again increasing the burden of interest payments on households, companies, and governments. Energy instability from the Middle East has further narrowed room for rate cuts in major economies. As the world pays the price for excess liquidity and debt, South Korea cannot afford to treat the burden of a mega-sized fiscal expansion lightly.
South Korea, moreover, is carrying substantial debt across households, companies, and the government. Household debt in the second quarter surpassed 2,000 trillion won for the first time. Corporate debt is also heavy, and national debt is projected to reach 1,520 trillion won next year. Debt is not only a matter of absolute size; the pace of increase and the ability to repay are also worrying. With rapid aging, mandatory spending on pensions and welfare, which is difficult to reduce, will grow even faster in the years ahead. When tax revenue is abundant, debt burdens should be reduced so that the government has room to respond in an emergency.
The United States offers a cautionary example. As massive fiscal deficits and interest burdens have piled up, long-term yields on U.S. Treasury bonds have remained unstable. Warnings about fiscal sustainability have also continued. This is despite the overwhelming advantage of being a reserve currency-issuing country and having the world’s largest bond market. Critics at home and abroad have even called it an empire of debt. The International Monetary Fund (IMF) has repeatedly urged the United States to cut its deficit, warning that if current trends continue, government debt could rise to 140% of gross domestic product by 2031. If even the United States, a reserve currency-issuing country, is worried about the cost of debt, South Korea, as a non-reserve-currency country, must be even more alert.
There is no reason to skimp on budgets for strategic industries and talent support, which are tied to the nation’s future. Future investment is all about timing. If a semiconductor plant is ready but operations are delayed because there is no power or water, the government must step in decisively. Fiscal soundness does not mean blindly blocking spending. The key is to invest boldly where future income can be created, while firmly cutting wasteful spending in areas that cannot. Since the government has pledged the largest spending restructuring in history, the National Assembly must thoroughly verify whether it delivers results.
What must be guarded against even more is treating the tax revenue boosted by the semiconductor boom as if it were permanent income. If this year’s sharp rise in corporate tax revenue is spent on various cash handouts or debt forgiveness, and then locked in as mandatory spending that is hard to reduce, the country could face a major setback the moment the semiconductor cycle turns down. Reckless debt forgiveness would also undermine fairness for citizens who have faithfully repaid their debts and could shake the principles of the financial market.
What is needed now is the normalization of fiscal policy. In an era of high interest rates and tightening, growth investment should be preserved, populist spending should be cut, and the debt burden should be reduced. The National Assembly must carefully examine whether these principles are being properly upheld.