Last year, the country's fiscal deficit reached 104.8 trillion won, marking the third largest on record. Concerns are growing that the financial burden could increase further ahead of the early presidential election in June. There are concerns that if additional supplementary budget allocations for economic response are made indiscriminately along with populist pledges, fiscal soundness could become even more precarious.
According to the '2024 National Final Accounts' announced on the 8th by the Ministry of Economy and Finance, the consolidated fiscal balance without social security fund recorded a deficit of 104.8 trillion won last year. This is the third largest scale ever, following the years of the COVID-19 pandemic in 2020 (-112 trillion won) and 2022 (-117 trillion won). The ratio to GDP is -4.1%, exceeding the government's fiscal rule target of 'within -3%' for two consecutive years.
Government debt reached a record high of 1,175.2 trillion won. Although the ratio decreased slightly to 46.1% from the previous year (46.9%) due to GDP growth, the total amount of debt increased by 48.5 trillion won compared to the previous year.
The problem is that the financial burden is structurally bound to increase. Both the ruling and opposition parties agree on the need for a supplementary budget, and there are concerns that if populist pledges are added ahead of the election, the financial burden could snowball.
The government is reportedly reviewing the allocation of about 10 trillion won for 'essential supplementary budget' to respond to trade risks, enhance artificial intelligence (AI) competitiveness, and support small businesses and low-income earners. The details of the supplementary budget are expected to be announced as early as next week. The government maintains that fiscal expansion is necessary only for limited purposes, such as changes in the trade environment, large-scale wildfires, and livelihood support.
On the other hand, the Democratic Party is advocating for a large supplementary budget of about 35 trillion won, which includes budget items aimed at stimulating the economy, such as the expansion of local currency. Given that the Yoon Suk-yeol government has suppressed total expenditure growth under the pretext of restoring fiscal soundness, the Democratic Party plans to actively support the local economy and vulnerable populations through the supplementary budget.
As the election unfolds, the likelihood of populist pledges regarding welfare expansion or cost-of-living support pouring in from various candidate factions is high. Financial experts warn that 'if fiscal policy is excessively swayed by politics, the medium to long-term soundness targets could become meaningless.'
Kim Jeong-sik, a professor emeritus at Yonsei University, noted, 'With aging exacerbating fiscal deterioration, it is essential to loosen fiscal policy to support the economy during periods of domestic stagnation. However, expenditures should be efficient, not populist.'
Some analysts suggest that the supplementary budget may not be a one-time occurrence. Woo Seok-jin, a professor of economics at Myongji University, said, 'Approximately 15 trillion won will be needed for the first-half supplementary budget, and after the presidential election, a second supplementary budget reflecting public opinion before the new government's inauguration may be unavoidable.'
The government's target for the consolidated fiscal balance without social security fund set in this year's budget is -73.9 trillion won. To achieve this, expenditures must be reduced by about 30.9 trillion won compared to last year, but if the supplementary budget materializes, this goal will inevitably be undermined. Moreover, the surplus in the general account this year is just 218.5 billion won, leaving hardly any viable means to secure funds except for issuing deficit government bonds.
There are ongoing calls for fundamental reforms in the fiscal structure. Jeon Sung-in, a professor of economics at Hongik University, stated, 'It is clear that the state's role is necessary, but the issue is the indiscriminate accumulation of fiscal deficits.' He emphasized that, 'Money must be spent where it is truly needed, and to do so, taxes will ultimately need to be increased, and expenditures should promote tangible effects such as debt alleviation for small businesses or ensuring minimum living standards, rather than merely securing votes.'
Reforming the structure of welfare expenditures has also emerged as a key issue. A professor of economics who requested anonymity stated, 'We cannot avoid the vicious cycle of insufficient tax revenue if we leave the mandatory expenditure structure, such as education grants and basic pension, unchanged.' He further argued, 'Currently, with health insurance finances falling apart, increasing the value-added tax may be a choice for future generations.'