[Editorial] ‘Big Spending’ vs. ‘Appropriate Spending’

The government has announced an emergency relief package worth 6.37 trillion won (4.29 billion U.S. dollars) to help low-income earners amid the economic crisis. Those unable to work will receive an average monthly subsidy of 200,000 won (135 dollars) for six months. Those able to work will get the chance to take part in large public works projects and receive state coupons and subsidies amounting to 830,000 won (559 dollars) a month. The number of households receiving the coupons and cash will more than double from 1.01 million (or 1.75 million people] to 2.21 million (4.35 million people).

It is the government’s responsibility to expand the social safety net, which prevents those under mounting pressure due to bankruptcies, business failure or unemployment from falling into a bottomless pit. More state spending could ease potential social uncertainty and contribute to economic recovery via growing consumption. The bigger responsibility of the government, however, is ensuring that the money will be distributed to those in dire need.

The package will be mostly financed by the revised supplementary budget. The ruling Grand National Party is considering formulating a revised supplementary budget of 30 trillion won (20.2 billion dollars), equivalent to three percent of GDP. If deficit financing and a revised supplementary budget are also considered, a large amount of money will be injected into the market. Unless government supervision is heightened, the package could result in serious moral hazard.

The recent embezzlement cases of public servants in Seoul and South Jeolla Province have made it hard to trust the government’s capability to distribute welfare funds to low-income households appropriately. Better government supervision and audit are needed to prevent public servants in charge of welfare fund distribution from embezzling the money. Welfare funds should never be handed out to those who can earn a living without the government’s help. Before creating a fund and injecting money into the economy, effective measures that prevent misuse of budget are needed.

The Korean economy is expected to decline this year. The government believes its revised supplementary budget will help the slumping economy to grow by creating jobs, expand social overhead capital and widen the social safety net. The government is getting into debt while aggravating its financial soundness. If it hopes to reduce its burden, it should spend the money only after establishing an appropriate spending plan in detail. Lawmakers should neither waste tax money for their own interests nor use the money for pork barrel politics.