Rival parties pour out SOC and cash pledges

Korea saw the largest-ever ‘tax revenue shortfall’ materialize last year as national taxes were collected 56.4 trillion won (about 42.3 billion U.S. dollars) less than the government's initial forecast. The strategy and finance ministry said Wednesday that the nation's annual tax revenue totaled 344.1 trillion won (258 billion dollars) last year. This is 56.4 trillion won less than the government projected in last year's main budget, marking the second consecutive year of a tax revenue deficit. Tax revenues declined in all tax categories except education tax last year due to the economic downturn and a shrinking asset market. Due to the semiconductor sector slump, manufacturing output fell significantly since the Asian financial crisis last year.

The problem is that the situation shows no signs of improving this year. The National Assembly Budget Office predicts that national taxes will be collected 6 trillion won (4.5 billion dollars) less than the government's forecast this year. This is due to sluggish domestic demand, including consumption and investment, and a slow recovery in the real estate and stock markets. Although the government is vowing to cut budget expenditures as much as possible, the administrative fiscal balance, which shows the actual situation of the country’s state finance, is expected to run a deficit of 92 trillion won (69 billion dollars) this year.

Nonetheless, the ruling and opposition political parties are racing with each other to announce large-scale SOC projects and cash support pledges ahead of the April general elections. Han Dong-hoon, chief of the ruling People Power Party’s emergency steering committee, visited Suwon, Gyeonggi Province, Wednesday and pledged to reconstruct railroads under the ground in old downtowns in major cities across the country and develop the emptied space above the underground railways. The ruling party plans to cover the project's cost by developing the surrounding land but has not provided a specific amount. In a New Year's press conference, Chairman Lee Jae-myung of the main opposition Democratic Party proposed a ‘birth basic income’ that would cover all education expenses, including university tuition, as a measure to address the low birthrate. "The financing will be arranged in the future," Lee said. Neither the ruling nor opposition parties have an answer for how to finance such massive programs.

There are too many SOC projects that the ruling and opposition parties are pushing forward without a preliminary feasibility study to verify their viability. Last week, the National Assembly passed a special law to build the Daegu-Gwangju Moonlight Railroad, which had been abandoned for more than 20 years due to low economic feasibility. There are also several other bills the rival parties seek exemptions from compulsory review of economic viability, including the relocation of Suwon military airport, costing an estimated 20 trillion won (15 billion dollars), and the construction of a circular metro railroad linking Busan and Ulsan metropolitan cities and South Gyeongsang Province. Such 'Don't even ask' SOC projects targeting votes in local regions are approaching 90 trillion won (67.4 billion dollars) in total value.

The country simply cannot afford those populist promises and the legislation of pork-barreling projects by politicians. The country's national debt, which has exceeded 1100 trillion won (820 billion dollars), will exceed 50 percent of the gross domestic product (GDP) this year, and the fiscal deficit will exceed 3 percent of GDP next year. Nevertheless, the populist race to pass on a ‘debt bomb’ to future generations is intensifying without considering any financing measures.