Unnecessary Spending and Reckless Subsidies Leave an Unbearable Debt to the Next Generation

The fiscal problem we face today is not simply a matter of numbers. It is a structural crisis that will become an economic shackle for future generations and threaten the sustainability of our community. It is time to stop the practice of passing today’s burdens on to the next generation and shift to responsible fiscal management.

South Korea’s national debt has reached 1,175.2 trillion won. That is an increase of about 50 trillion won from the previous year and the largest amount on record. Interest payments alone amount to 25 trillion won annually, and in the end, they must be covered by the taxes of future generations.

An even bigger problem lies in the structure of fiscal spending itself. More than half of the current budget is tied up in legally mandated fixed expenditures such as pensions, health insurance, and interest on government bonds. As the elderly population continues to grow and the working-age population declines, these expenditures are bound to rise even more steeply. As of 2023, mandatory spending accounted for more than 50% of total fiscal expenditure, and it is expected to increase by an annual average of 5.7% through 2028. The government cannot arbitrarily cut or adjust this spending. As a result, fiscal flexibility is steadily disappearing.

Another cause for concern is how rapidly the debt is growing. The IMF has warned that South Korea’s national debt is expected to increase at the fastest rate among 35 advanced economies. If the current trend continues, the ratio of national debt to GDP is highly likely to exceed 60% by 2028. The crisis is being driven not simply by the increase itself, but by the speed of that increase.

International cases also offer a warning. Venezuela ruined its national finances through reckless welfare expansion and populist policies, and the result was hyperinflation and the collapse of its currency. Free public utilities and indiscriminate subsidies may have won short-term popularity, but the economy collapsed to an irrecoverable level. We must not follow the same path.

In South Korea as well, election seasons inevitably bring vote-buying pledges. Pork-barrel promises such as expanding the basic pension or issuing local currency vouchers may be effective in winning votes, but their cost translates directly into fiscal burdens. If such irresponsible promises are repeated, they will ultimately lead to intergenerational conflict and distrust.

Fiscal waste also stems from invisible regulations and administrative costs. Excessive regulation and complex procedures raise the government’s administrative costs and dampen private-sector economic activity. That weakens the revenue base. To make up for falling revenues, the government issues more government bonds, which in turn fuels the expansion of national debt.

National debt continues to rise, and the interest burden grows larger every year. Vote-buying policies and populist pledges encourage greater fiscal spending and ultimately lead to even more government bond issuance. The accumulating debt may be spending for votes today, but the responsibility for repaying it will fall entirely on future generations.

We cannot leave debt to our descendants. Continued spending expansion and mounting fiscal burdens limit the next generation’s financial room to maneuver and their opportunities in life. Support policies introduced without regard for fiscal conditions ultimately saddle the next generation with debt they cannot bear. We must reduce long-term burdens through structural reform of mandatory spending. In addition, to reduce national debt, unnecessary spending must be cut boldly.

Ho-gyeong Lee, Researcher, Center for Free Enterprise (CFE)

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Original title: 불필요한 지출과 무분별한 지원 정책, 다음 세대에 감당할 수 없는 빚 안겨

Author: Ho-gyeong Lee

Date: 2025-05-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27754