After Shin Jae-min’s Revelations: How Should We Assess Fiscal Performance by Administration?

“In November 2017, working-level officials at the Ministry of Economy and Finance concluded that, due to excess tax revenue, there was no longer any need to issue deficit-covering government bonds. However, Deputy Prime Minister Kim Dong-yeon flew into a rage, citing a ‘political judgment,’ and demanded that the issuance of deficit bonds be pushed through. The deputy prime minister’s ‘political judgment’ was to raise the Park Geun-hye administration’s national debt ratio in order to reduce the burden on the Moon Jae-in administration.” Shin Jae-min, then a junior official who had been at the center of the working-level team, resigned without hesitation in July 2018 and disclosed this fact on YouTube at the end of December.

Shin Jae-min expressed his disappointment at the time as follows: “If 8.7 trillion won in government bonds are issued, the interest burden for just one year amounts to 200 billion won. … Does the political consideration or political judgment that senior public officials are supposed to have mean … contributing to the survival of the administration? … I did not particularly want to be promoted.” Even if future generations must bear an enormous fiscal burden, should the Moon Jae-in administration’s fiscal performance be highly praised so long as the national debt ratio over its five years is managed appropriately? This is another important policy question that former official Shin Jae-min’s revelation has posed to our society.

We often compare the fiscal performance of single five-year administrations by using the national debt indicator. Specifically, we compare the national debt ratio in the first and last years of each five-year term and then compare the increase across administrations. Looking at the net increase in national debt over the five years of each administration since the Asian financial crisis, the figures are 73.5 trillion won for the Kim Dae-jung administration, 165.4 trillion won for the Roh Moo-hyun administration, 143.9 trillion won for the Lee Myung-bak administration, and 217.1 trillion won for the Park Geun-hye administration. If we examine the net increase in the national debt-to-GDP ratio instead of the absolute amount, the figures are 6.2 percentage points for the Kim Dae-jung administration, 11.1 percentage points for the Roh Moo-hyun administration, 3.5 percentage points for the Lee Myung-bak administration, and 6.0 percentage points for the Park Geun-hye administration.

Kim Dong-yeon knew all too well that national debt is used to compare fiscal performance across administrations. He wanted to make the Moon Jae-in administration’s fiscal performance look better than it really was by raising the final debt ratio of the Park Geun-hye administration as much as possible. By contrast, the working-level officials at the Ministry of Economy and Finance regarded future fiscal burdens as more important than a single-term administration. Once issued, deficit-covering government bonds impose a substantial interest burden on future governments and future generations unless they are repaid. Faced with this obvious fact, Shin Jae-min, a young 32-year-old official, could not help but feel a pang of conscience.

In the end, the issuance of deficit-covering government bonds was not carried out because of opposition from working-level officials, but the deputy prime minister’s ‘political judgment,’ focused only on a five-year term, is chilling. How many fiscal programs that impose enormous fiscal burdens in the future while creating little burden during the term in office—such as increasing the number of civil servants—have been adopted under the guise of ‘political judgment’? Nowhere is systematic information being produced on the future fiscal burden of individual fiscal programs. Those making such ‘political judgments’ likely know this all too well; how, then, are we to hold them accountable? All one can do is sigh.

The national debt indicator has another weakness as well. The government can pursue policy projects as much as it likes by increasing the liabilities of public institutions instead of national debt. A representative form of increasing the liabilities of public financial institutions, including public financial funds, is public funds. Apart from public funds, it can also increase the liabilities of non-financial public enterprises. If public funds and the liabilities of non-financial public enterprises are additionally taken into account, how would the fiscal performance of past administrations change?

The Kim Dae-jung administration raised 150 trillion won in public funds while simultaneously increasing the liabilities of 10 major non-financial public enterprises by about 20 trillion won. The Roh Moo-hyun administration increased the liabilities of major non-financial public enterprises by about 120 trillion won. The Lee Myung-bak administration increased public funds by 160 trillion won and, along with that, increased the liabilities of major non-financial public enterprises by 160 trillion won. By contrast, under the Park Geun-hye administration, there was neither the raising of public funds nor an increase in the liabilities of non-financial public enterprises. The policy to reduce public institution debt, implemented from 2014, is itself proof of this fact. Moreover, the Park Geun-hye administration reduced future fiscal burdens by hundreds of trillions of won through civil service pension reform.

Taking all of these facts into account, we must seriously consider how to evaluate fiscal performance by administration. For a long time, we have debated fiscal statistics in an effort to find an answer to this question. Since the Kim Dae-jung administration, accrual accounting has been introduced into government accounting in order to grasp future fiscal burdens, at least in part. The Roh Moo-hyun administration introduced the concept of the managed fiscal balance, and the Lee Myung-bak administration expanded the fiscal scope to public non-profit institutions. The Park Geun-hye administration refined statistics in order to manage the debt of the entire public sector, including non-financial public enterprises. What must be done for these efforts to bear fruit? If we are not to fall for the temptations of opportunistic ‘political judgment,’ we must find an answer to how the fiscal performance of each administration should be compared and evaluated.

Dong-seok Ok / Professor, Incheon University

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Original title: 신재민의 폭로 이후: 정권별 재정성과를 어떻게 평가할 것인가?

Author: Dong-seok Ok

Date: 2019-01-07

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=15&idx=11335