Lee Jae-myung’s statement, “The low national debt is due to the lack of household support” is ‘generally true’

[검증대상] Lee Jae-myung “The low national debt ratio is due to the lack of household support”

“Candidate Seok-Yeol Yoon, rich countries and poor people, is this reasonable?”

Democratic Party presidential candidate Lee Jae-myung and People’s Strength presidential candidate Yoon Seok-yeol are arguing day after day over the payment of national disaster relief funds.

When Candidate Yoon expressed his objection to the payment of the national disaster aid on the 6th, Lee posted on his Facebook on the 7th, “Right now, the household debt ratio in Korea is very high, and the national debt ratio (government debt ratio) is the highest in the world. This is an abnormal situation that is low, because the state’s public transfer income, that is, the state’s household support, was very insufficient compared to other countries. Yoon Seok-yeol protesting against the government for ‘shooting’ Lee Jae-myung “Rich country, poor people” http://omn.kr/1vwmr)

We examined whether Lee’s assertion that Korea’s high household debt ratio and low national debt ratio compared to other advanced countries is true because of the lack of government support for households.

[검증내용 ①] The household debt ratio is at the top, and the national debt ratio is at the bottom.

It is true that Korea’s household debt ratio is high and the national debt ratio is low compared to major advanced countries such as the OECD and G7.

Candidate Lee said on the 7th, “Korea’s national debt ratio this year is only 51.3%, which is less than half of the average of 121.6% in advanced countries (IMF’s October 2021 fiscal review report). On the other hand, Korea’s household debt growth rate from 2016 to 2020 is 16.5%. %, which is 7 times that of the US (2.3%), 3.5 times that of the UK (4.7%), and twice that of Japan (7.8%).” In fact, the International Monetary Fund (IMF) estimated Korea’s national debt-to-GDP ratio to be 51.3% this year in the ‘October 2021 Fiscal Monitor’ report on October 13th, and the average of 35 major countries was 121.6%. , and the G7 and G20 country averages were higher at 139% and 132.8%, respectively.

In addition, the Korea Economic Research Institute, affiliated with the Federation of Korean Entrepreneurs, reported on ‘Korea’s Private Debt Status During 2016-2020 and Comparison with the G5’ on June 10, the size of Korea’s household debt at the end of 2020 was about 1998 trillion won, the ratio of household debt to GDP. Although the average of the G5 countries such as the US, UK, Germany, France and Japan increased by 16.5 percentage points from 87.3% to 103.8% over the past five years, the average of the G5 countries increased only 6.4 percentage points from 66.1% to 72.5% during the same period.

▲ Debt-to-GDP ratio of five major countries including Korea (as of the third quarter of 2020) Source: Bank of International Settlements (BIS) and Bank of Korea ⓒ Nara Salim Research Institute

▲ Household debt-to-GDP ratio in five major countries including Korea (2000-2020) Source: Bank of International Settlements (BIS) and Bank of Korea. As of the third quarter of 2020 ⓒ Nara Salim Research Institute

▲ Government debt-to-GDP ratio of major five countries including Korea (2000-2020) Source: Bank of International Settlements (BIS) and Bank of Korea. As of the third quarter of 2020 ⓒ Nara Salim Research Institute

On June 9, the Nara Salim Research Institute compared the private debt-to-GDP ratio and the government debt-to-GDP increase in five major countries, including Korea, the United States, Japan, Germany, and the United Kingdom, on June 9. On the other hand, the growth rate of the government debt ratio was the lowest. The US government debt ratio increased by 25.7 percentage points from 103 percent in 2019 to 127.8 percent in the third quarter of 2020, but in Korea, it increased only 6.4 percentage points from 39.2 percent to 45.6 percent during the same period.

Lee Sang-min, senior research fellow at the Nara Salim Research Institute, said, “As a result of comparing the ratio of government and private debt to GDP for about 20 years from 2000 to 2020, four countries except Korea have a large proportion of government debt, and the proportion of private debt such as households and businesses. While it appears that this ratio has been maintained, in Korea, the proportion of government debt continues to remain low, and the proportion of private debt such as households and businesses is increasing.”

[검증내용 ②] Public social welfare spending is the lowest in the OECD

While the government debt ratio is low, the amount of public social welfare expenditure supported by the government to households fell short of the OECD average.

Candidate Lee posted on his Facebook page on January 15th, “The national debt-to-GDP ratio is 45.9%, far less than half of the world average of 131%. Nevertheless, Korea’s household income support is the OECD average (about 21 of GDP). %), so in the global economic crisis, the country is completely lost and only the people bear the burden.”

The Ministry of Health and Welfare announced on December 17, 2019, “Korea’s public social welfare expenditure as a percentage of GDP in 2018 was 11.1%, half the OECD average (20.1%)” is estimated to be). In 2019, Korea’s public social welfare expenditure as a percentage of GDP is 12.2% (about 233.5 trillion won), which is continuously increasing, but it is still at the bottom at 35th among 38 OECD member countries (average 20.0%).

▲ Comparison of the ratio of public social welfare expenditure to GDP by country (Source: Source: Organized by the National Assembly Budget Office based on the OECD Social Expenditure Database) ⓒ National Assembly Budget Office

The OECD also stated in the ‘Korea Economic Report’ in August last year, “The Korean government, whose general government debt is about 40% of GDP, is defending the impact of COVID-19 by appropriately utilizing its strong fiscal capacity. will have to continue,” he ordered.

[전문가 의견] “Comparison with the finances of key currency countries is risky” vs. “A more favorable side view”

▲ Hong Nam-ki, Deputy Prime Minister of Economy and Minister of Strategy and Finance, attends and answers the plenary meeting of the Planning and Finance Committee held at the National Assembly in Yeouido, Seoul on the afternoon of the 8th. ⓒ Soyeon Nam

However, the Ministry of Strategy and Finance and some economists have argued that Korea is not a key currency country like the US, Japan, and the EU, and that the government should be cautious about expansionary fiscal policies such as issuance of government bonds because of the high rate of increase in the national debt ratio.

On March 2, Hong Nam-ki, Deputy Prime Minister and Minister of Strategy and Finance, posted on his Facebook page, “For non-key currency countries like Korea, it is important to manage external credibility. It is also necessary to keep in mind that the debt ratio of non-key currency countries does not exceed 50%, while the ratio exceeds 100%,” he said.

So-young Kim, a professor of economics at Seoul National University, who served as secretary of the Economics Division of Candidate Seok-yeol Yoon’s policy advisory group, also

‘The difference in fiscal capacity between key currency countries and non-key currency countries’ “It is not only an unreasonable conclusion but also a risky conclusion to compare the government debt-to-GDP ratios with key currency countries and conclude that they have ample fiscal space because their government debt-to-GDP ratios are lower than those of these countries,” the report said. pointed out

However Nara Salim Research Instituteon April 12, “Korea is not a key currency country, so even if the ratio of government bonds is rather high, there is also an aspect that is more advantageous in evaluating fiscal sustainability.” 86% of Korean government bonds are held by domestic citizens, and the debt with corresponding assets such as government bonds for stabilizing the foreign exchange market is high at about 37%.

On the 5th, Chung Chang-soo, director of the Nara Salim Research Institute, <오마이뉴스> In a phone call, he said, “The reason why Korea’s household loan ratio is high is because of real estate-related loans for the upper middle class and loans for living expenses of the lower middle class. “It is necessary to solve the debt of the upper and middle classes by stabilizing the real estate market and reduce the debt of the middle and lower classes through the government’s income preservation,” he said.

He said, “It is true that Korea has a low government debt ratio due to low public social welfare spending compared to advanced countries.” He said, “The Bank of Korea only talks about external debt ($604.2 billion as of the second quarter of 2021), $1.61 trillion) and 500 trillion won (about $458.6 billion as of the end of July 2021) in foreign exchange reserves, so the word ‘poor people in a rich country’ comes out.”

Jun-kyung Ha, a professor of economics at Hanyang University, who recently chaired the first economic subcommittee of the ‘Transitional Fair Growth Strategy Committee’ directly under Candidate Jae-myung Lee, also announced on the 8th. <한국경제> In an interview, he said, “In order to bring the economy up to a virtuous cycle, an active role of fiscal policy is essential.” He said, “Even if the national debt ratio is nominally high, if the social return on fiscal expenditure is higher than the cost of financing, it should be used. There is an opportunity, but if you don’t use it, it’s a problem.”

[검증결과] The claim that “the low national debt ratio is due to the lack of household support” is ‘generally true’

It is clear that Korea’s household debt-to-GDP ratio is higher than that of major advanced countries, while the national debt-to-GDP ratio and public social welfare expenditure are low. Some argue that the debt ratios of Korea and key currency countries should not be simply compared, but the opinions of experts on the fiscal spending capacity are divided. Accordingly, candidate Lee Jae-myung’s assertion that ‘the high household debt ratio and the low national debt ratio is due to the lack of household support’ is judged to be ‘generally true’.