"Debt Repayment vs. Investment in the Future: Debt Ratio Is What Matters... It Will Fall Further"

Interview with Lee Sang-min, Senior Research Fellow at the Nara Salim Research Institute

The government has emphasized investing in the future through the creation of a Future Response Fund, in connection with the massive additional tax revenue generated by factors such as the semiconductor boom. The opposition, however, is calling for debt repayment. A fiscal expert said the government is already making considerable efforts to manage its debt and stressed the importance of investing in the future.

Lee Sang-min, a senior research fellow at the Nara Salim Research Institute, said in an interview with The Asia Business Daily, “When additional tax revenue comes in, some of it should go toward debt repayment and some should be spent. When you have money, you should do both, and in fact, the government is doing both.” His point was that future investment and debt repayment should not be treated as mutually exclusive. “The government issued KRW 5 trillion less in government bonds in October this year, and it also issued less during the supplementary budget process,” he said. “It seems likely that it will issue several trillion won less in November and December as well.” Lee said, “What matters is not the absolute amount but the debt ratio.” In other words, as the economy grows, the debt level should ultimately be assessed in relation to the size of the economy, not simply by its monetary amount.

Prime Minister Han Seongsuk delivers opening remarks before a comprehensive policy inquiry at a plenary session of the National Assembly Special Committee on Budget and Accounts on the 4th. Yonhap News Agency.

He also forecast that the national debt ratio would fall as a result of the government’s debt-management efforts and economic growth. “The government forecasts a ratio of around 48% next year, but my estimate is around 45%,” Lee said. “The denominator will grow as the economy expands, while the numerator will also shrink.” He added, “The Ministry of Finance and Economy is working hard to repay debt.”

Regarding next year’s budget, he expressed concern about local government finances. As additional tax revenue and other funds flow into programs such as the Future Response Fund, the growth rate of local allocation tax grants will be limited to 2%, he said. “With regard to this year’s excess tax revenue, the government’s proposed amendment to the Local Allocation Tax Act would exclude transfers to the Future Response Fund from the total net domestic tax revenue, meaning the money would not go to local governments,” he said. “This is also inconsistent with the spirit of the Constitution and the National Finance Act.”

The government and the Democratic Party of Korea said at a high-level party-government consultation on November 8 that they had also discussed “ways to make sufficient increases in the amount of available funds for local governments in 2027, using excess tax revenue in 2026 and other resources, so that local government finances can be strengthened.”

This content was produced with the assistance of AI translation services.