Specifically, pursuant to Article 90, Paragraph 3 of the National Finance Act, at least 30 percent of the surplus must be contributed preferentially to the Public Fund Redemption Fund under the Public Fund Repayment Fund Act. Of the remaining surplus after this contribution, at least 30 percent must be used for the following: (1) principal and interest on government bonds or borrowings; (2) compensation payments determined under the Local Government Compensation Act; (3) principal and interest on borrowings of the loan account of the Public Fund Management Fund; and (4) other debts borne by the government under other laws, etc. etc. Therefore, the supplementary budget must first be adjusted within the amount of the existing budget.

Looking at the changes in the budget size due to the supplementary budget, total expenditure increases from KRW 727.9 trillion to KRW 753.1 trillion, while total revenue-including excess tax revenue-increases from KRW 675.2 trillion to KRW 700.6 trillion. However, if tax revenues later decline, this would amount to hurried spending in advance and ultimately increase the burden of government bonds.

The recent increase in tax revenue stems from increased corporate tax revenue, recovery in employment and wage productivity, and rising securities and financial-related taxes. In particular, improved corporate performance in 2024 resulted in higher corporate taxes reported and paid last year being reflected in collections this year. In the current severe economic crisis, tax revenues in the latter half of the year or next year could decline significantly.

A particularly serious issue lies in the structural composition of tax revenue. As of 2024, the corporate tax revenue of the top 1% of corporations has continued to increase, bearing 81.8% of the total, and the top 10% of corporations bore 96.1%. Meanwhile, 54% of all corporations paid no corporate tax at all, continuing an increase from 465 in 2018.Thus, this year’s increase in tax revenue was essentially a result of last year’s improvement in the semiconductor sector and large export-oriented corporations.

Under the Lee Jae-myung administration’s stance, which takes deficit bond issuance for granted beyond the principle of balancing revenue and expenditure, serious economic problems are likely to persist in the second half of the year, and if tax revenue increases even slightly, debt-financed supplementary budgets will be repeated by simply adding more spending. Accordingly, the prerequisite for fiscal management must be the management of national debt. If government debts cannot be directly reduced, excess revenue should be prioritized for use as a growth resource for vulnerable sectors. At the same time, substantial economic structural reform must be carried out in parallel.

A representative project in the supplementary budget is the KRW 4.8 trillion high-oil-price damage support fund. Payments of KRW 100,000 to KRW 600,000 per person will be provided to a total of 35.77 million people, including the bottom 70 percent of income earners, near-poor households, single-parent families, and basic livelihood recipients. Although described as support for the bottom 70 percent, this is effectively no different from livelihood subsidies for all. If local elections are being considered implicitly, this constitutes an “election support subsidy” distributed by the central government. As with last year’s livelihood recovery coupons, the benefit structure is tiered to provide greater support for recipients in smaller, more remote populations and those in more vulnerable circumstances. Beneficiaries may choose to receive support through credit cards, debit cards, or local currency, with usage locations identical to those of local currency.

While recipients are divided by income level, metropolitan residents receive KRW 100,000, whereas non-metropolitan residents receive KRW 150,000. However, metropolitan residents face much higher living costs and consumption structures more sensitive to inflation; thus, the amounts should be reversed. The criteria for designating population-decline areas as special or preferential regions are also arbitrary. These regions already receive various benefits from central and local governments, making it difficult to justify why they should receive additional support. Ultimately, this is not livelihood support but gerrymandering-style assistance for elections.

The government should first ask citizens for fiscal discipline during economic downturns and distribute livelihood assistance only in unavoidable circumstances. Moreover, if the issue stems from rising oil prices, policies should aim to provide tangible reductions in oil prices and ensure spending directly offsets oil-price-related consumption. Gasoline and diesel prices include surcharges that are out of touch with reality. In the past, gasoline was a necessity for high-income private car owners, but today it is a necessity for the entire population. Additionally, support for public transportation services in both the public and private sectors, which rely heavily on gasoline, must be strengthened.

3. National Debt: A Choice for the Next Generation

Additional tax revenue must not serve as a justification for supplementary budgets that appear to return extra taxation to the public. Under current conditions-where government spending that normalizes deficit budgeting through livelihood subsidies prevails over structural economic reform, and where economic momentum is sustained by only a small number of industries-sustainable growth cannot be expected. Ultimately, as the national debt growth rate rises and economic growth declines, the national debt ratio will be bound to climb, eventually exceeding sustainable levels and culminating in an economic crisis. It will result in dual suffering through declining sovereign creditworthiness in opposition to trends observed in advanced economies.

First, surplus tax revenue must be used to repay government bonds in accordance with the National Finance Act in order to reduce the scale of government debt. Active debt reduction policies of the government will enhance international confidence in Korea, contributing to exchange rate and price stability. Demonstrating voluntary and proactive efforts to reduce government bond issuance to foreign investors who have expressed concern over national debt is expected to increase the value of Korean firms.

Second, a sophisticated policy platform for exchange rate stabilization must be established. In an economic environment with greater trade dependence than any other advanced economy, exchange rate stability is an essential element for sustainable economic growth. The fundamental cause of rising exchange rates lies in declining demand for the Korean won, reflecting capital outflows and insufficient foreign capital inflows. Capital flight stems from a pessimistic domestic outlook, complemented by an erosion of competitiveness that discourages foreign investment. Consequently, establishing a pro-business environment is critical to restoring economic stability.

Third, the government should seize this opportunity to reform fuel taxes, which have long been cited as a major cause of rising prices and livelihood difficulties. Consumer gasoline prices currently include taxes and levies amounting to KRW 475 per liter under the Transportation, Energy and Environment Tax, KRW 340 per liter for diesel, surcharges for education tax (15% of the traffic tax), local driving tax (26% of the traffic tax), and 10% value-added tax on all taxes. Consequently, 50-60% of the consumer price consists of taxes. Not only should these levies be reduced, but the education tax imposed on gasoline-entirely unrelated to fuel consumption-should be abolished. Despite the shrinking school-age population caused by low fertility rates, local education grants continue to expand. This structural misalignment leads to unplanned and inefficient spending, making these grants one of the most fiscally unproductive sectors of the national budget.

Finally, the most direct way to resolve the increase in national debt is to foster a competitive next generation capable of bearing this burden. As the AI revolution encompassing IT, artificial intelligence, and humanoid robotics etc., becomes embedded in everyday life globally, policies that strengthen labor market vested interests must be abolished. Instead, young people must be provided with opportunities to cultivate a strong work ethic and global competitiveness. Failing this, Korea will struggle to escape the vicious cycle of national debt, ultimately jeopardizing Korea’s long-term prosperity.

This article may differ from the views of the Hansun Foundation.