The national budget for next year will exceed 820 trillion won, marking a 12.8% increase from this year, the steepest rise since total expenditure statistics began. The previous record was a 10.6% increase during the 2009 global financial crisis. This is the first time in a period of economic prosperity that the budget has increased by double digits. Tax revenue is expected to rise even more significantly, with national tax revenue projected to increase by 49%, or 194 trillion won. Lawmakers must ask where this money is being spent and what remains.
The government's answer to the surge in tax revenue is future investment. They plan to allocate funds to artificial intelligence and talent development to boost potential growth rates. While the intention is commendable, the approach raises concerns. If spending increases based on a temporary economic boom, it is not investment but rather recklessness.
After spending, little remains. Despite a 194 trillion won increase in tax revenue, the managed fiscal balance still shows a deficit of 3 trillion won. This is because expenditures have been aligned with the peak of tax revenue. Starting in 2028, total revenue growth rates are expected to decline to 4.5%, 3.4%, and 3.4%, while expenditures will rise by 9%, 7%, and 5%. The deficit is projected to grow to 48 trillion, 83 trillion, and 101 trillion won. A significant portion of the increased spending is allocated to irreversible items such as the basic child allowance, universal youth savings, and free tuition for national universities.
Even this outlook is considered overly optimistic. The government's medium-term plan assumes that semiconductor tax revenue will remain at its peak. Even under this assumption, the deficit is expected to return to the 100 trillion won range by 2030. If the semiconductor market experiences even a slight downturn, tax revenue could drop by tens of trillions, leading to an uncontrollable increase in the deficit. The government has diagnosed the semiconductor cycle as short but has planned expenditures as if there were no cycle. This is a risky fiscal strategy that relies on the continuation of good times.
The balance of macroeconomic policy has also been disrupted. This year's economic growth rate is projected to reach 12%, the highest in 30 years, and the Bank of Korea has raised interest rates for two consecutive months due to inflationary pressures. The government has reversed the fundamental principle of reducing fiscal spending during economic booms. When the central bank applies the brakes, fiscal policy should not accelerate; otherwise, interest rates will rise further, impacting households and businesses that are already burdened with debt.
Even more perplexing is the national debt. Despite a 49% increase in tax revenue, national debt has risen by 106 trillion won to 1,520 trillion won. The reason for the 3 trillion won deficit alongside a 106 trillion won increase in debt is the future response fund. The government has pre-approved a limit on bond issuance to accumulate 104 trillion won in surplus funds in this fund. While the government refers to this as savings, borrowing with one hand and holding onto the money with the other is not savings. The interest on the 104 trillion won stored in the fund alone amounts to 4 trillion won annually. The government's response is to earn this interest through stock and bond investments, but it is difficult to commend a government that seeks profits through debt while controlling market rules and licensing. Countries like Chile and Norway accumulate stabilization funds with actual surpluses. We are the first country to accumulate funds while increasing debt.
The interest burden is already substantial. Next year's interest on national bonds is projected to reach 42.8 trillion won, two and a half times that of 2020, and is expected to exceed 53 trillion won by 2030. This amount is equivalent to 60% of the defense budget of 73 trillion won and larger than the R&D budget of 39 trillion won. As debt increases and interest rates rise, the interest burden will grow to unprecedented levels, ultimately affecting welfare, defense, and education.
Despite this, the government claims that fiscal health has improved. They assert that the national debt ratio will decrease from 51.6% to 48.3%. This is due to differing projections for the denominator. This year's ratio is based on the nominal GDP forecast for 2026, which anticipated low growth at the beginning of the year, while next year's ratio is calculated based on the nominal GDP for 2027, reflecting the semiconductor boom. If recalculated with current projections, this year's ratio would be 46.9%, significantly lower, while next year's would actually rise to 48.3%. Excluding the 104 trillion won stored in the fund, the ratio would be 45.0%. Fiscal health built on dishonest numbers is not true health.
Examining the future fund reveals even clearer issues. Of the 162 trillion won in fund revenue, only 45 trillion won is allocated for projects. Among these, only 42% is for capital accumulation for the future. The remainder consists of cash, vouchers, local general funds, public enterprise investments, and operational expenses. The basic child allowance of 29 trillion won was expanded without social discussion or funding measures and included in the fund. Even after the boom ends, children will continue to be born, and this money will return to the general account as mandatory spending. The youth culture and arts pass has increased from 36.1 billion won to 792.5 billion won, a 22-fold increase. Existing general account projects worth 18 trillion won have merely been renamed and transferred to the fund. In reality, there are very few projects that are truly necessary for the future, such as elderly care or youth AI capability transformation.
Procedures have also been bypassed. The national living convenience complex centers are set to spend 3 trillion won over two years, with 200 billion won allocated per center, yet there is no record of a preliminary feasibility study. The 39.6 trillion won earmarked for local and educational funds has also been redirected to the central fund by altering formulas. Money that local governments used to spend independently has now become funds allocated by the central government.
There are no rules. None of the 18 articles of the fund law stipulate a limit on accumulation, withdrawal conditions, restoration obligations, or sunset provisions. When funds are withdrawn from the fund for general accounts, it is concluded with post-reporting without parliamentary review. The chair of the committee overseeing the fund is the Minister of Planning and Budget. The person depositing the money, withdrawing it, and supervising it is the same. This is not a fund but a second budget established outside parliamentary review, akin to a pre-withdrawn overdraft account. The resources are debts that future generations will have to repay, making this fund a future debt fund rather than a future response fund, ultimately placing future generations in a difficult position.
The government had other, better options. If the total expenditure growth rate had been set at 7.8%, the managed fiscal balance would show a surplus of 33 trillion won, the first surplus in 20 years since 2007. A 7.8% increase is still sufficiently expansive. With that surplus, debt could be repaid over two years, and if semiconductor tax revenue remained, the fund could be accumulated then. Savings should come from surplus funds, not borrowed money. A fund built on repaying debt and saving leftover money would be a future fund that becomes a legacy rather than a burden for future generations.
The ball is now in the National Assembly's court. Lawmakers must address two key questions: Why is debt being incurred at the same level as during a deficit year when the deficit has disappeared? Who will use the fund created from this debt, and under what rules? They must stop the practice of saving through debt, enshrine the rules of the fund in law, and ensure that the management of the fund is composed of private experts rather than the Minister of Planning and Budget and government officials. Additionally, they must eliminate projects unrelated to the future. The reason the National Assembly must address these issues is clear: while the government prepares the budget, the citizens bear the debt, and the National Assembly is the body that approves that debt on behalf of the citizens. If these issues are not corrected in this review, the increased spending and debt will be passed on to the next National Assembly, the next government, and future generations.
* This article has been translated by AI.
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