🚨 National Budget Deficit Exceeds 100 Trillion Won
Today Korean Economic News for Beginners | 2025.11.14
0️⃣ Fiscal Health at Risk from Consumption Coupons and Welfare Expansion
📌 Managed Fiscal Balance Shows 102.4 Trillion Won Deficit in September... National Debt Surpasses 1,259 Trillion Won
💬 As of September this year, the government's managed fiscal balance recorded a deficit of 102.4 trillion won, marking the largest fiscal deficit since the COVID-19 pandemic period. During the same period, national debt reached 1,259 trillion won, a sharp increase of 118 trillion won from the beginning of the year. According to the Ministry of Economy and Finance, the main causes of this expanding deficit are the nationwide consumption coupon program (13 trillion won), increased mandatory welfare spending including basic pension and child allowances, and rising interest costs due to higher government bond rates. While tax revenue increased only slightly compared to the previous year, spending exceeded 544 trillion won, widening the gap between income and expenditure. With government bond interest rates rising to the 3% range, the government's interest burden is surging. If the expansionary fiscal policy continues, next year's deficit is likely to expand further. Experts warn that "while there are short-term economic stimulus effects, structural fiscal health deterioration is concerning."
1️⃣ Easy to Understand
The 'managed fiscal balance' that shows the government's fiscal condition recorded a deficit of over 102 trillion won. This means the government spent 102 trillion won more than it collected in taxes. National debt also increased to 1,259 trillion won, growing by 118 trillion won in just 10 months.
Let's compare the government's finances to a household budget. If your monthly income is 4.8 million won but you spend 5.44 million won on living expenses, you'd have a deficit of 640,000 won each month. You'd need to borrow money to cover the shortage, and your debt would keep growing. The government works the same way. When spending exceeds tax revenue, it must issue government bonds to borrow money.
This year, the government's revenue (income) is expected to be about 480 trillion won. However, spending (expenditure) exceeded 544 trillion won. There's a gap of over 60 trillion won between income and spending. This situation accumulated through September, resulting in a managed fiscal balance deficit of 102 trillion won.
Why did this happen? There are three main reasons.
First, nationwide consumption coupons were distributed. The government distributed consumption coupons to all citizens to boost the economy. About 250,000 won per person was given, totaling a massive 13 trillion won. This was a temporary expenditure, but it's a very large amount.
What are consumption coupons? The government gives money to people, but not as cash - as coupons. They can be used at supermarkets, restaurants, online shopping, etc. The idea is that this will increase consumption, which increases business sales, which revives the economy.
For example, Mr. A originally planned to spend only 300,000 won shopping this month. But the government gave him a 250,000 won consumption coupon. Mr. A thinks "I should use what I received" and shops for 550,000 won worth of goods. If everyone increases consumption this way, it brings vitality to the economy - that's the government's calculation.
But there's a problem. This consumption increase effect is short-term. Once the coupons are used up, things return to normal. Meanwhile, the 13 trillion won the government spent remains as debt. Moreover, some experts point out that "consumption didn't actually increase because of the coupons - people just replaced money they were going to spend anyway with coupons." If that's true, only the government spent money while the economic stimulus effect was minimal.
Second, welfare spending is growing rapidly. Welfare spending like basic pension, child allowances, and disability pension increases every year. This spending is called 'mandatory spending' because it's set by law and the government can't reduce it at will.
Why is welfare spending increasing? The biggest reason is aging. As the population aged 65 and over continues to grow, the number of people receiving basic pension also increases. In 2023, about 6.5 million people received basic pension, but in 2024 it increased to 7 million. The per-person payment amount also rose. It was 300,000 won per month in 2023, but increased to 320,000 won in 2024.
A simple calculation shows that basic pension spending, which was 6.5 million people × 300,000 won × 12 months = 23.4 trillion won, increased to 7 million people × 320,000 won × 12 months = 26.88 trillion won. It grew by over 3 trillion won in just one year.
Child allowances are similar. Previously, they were only given to children under 6 years old, but now the coverage has expanded. The per-person payment amount has also increased. These welfare policies have good intentions, but they're a heavy burden on the budget.
The bigger problem is that once this welfare spending increases, it's very difficult to reduce. When you try to cut benefits people are already receiving, you face enormous resistance. It's also very politically burdensome. So welfare spending tends to go in only one direction. It's easy to increase but never decreases.
Third, the interest burden has grown as government bond rates have risen. When the government borrows money, it issues government bonds. Since bonds are borrowed money, interest must be paid. The problem is that interest rates have recently risen, sharply increasing the interest burden.
In 2021, government bond interest rates were in the 1% range. Now they're in the 3% range. They've more than doubled. Simply put, even borrowing the same amount, the interest to be paid has more than doubled.
For example, let's say the government borrowed 100 trillion won. When the interest rate was 1%, annual interest was 1 trillion won. But when the rate becomes 3%, annual interest increases to 3 trillion won. That's an additional burden of 2 trillion won.
Currently, Korea's national debt is 1,259 trillion won. If the average interest rate on all this debt rises by 1 percentage point, what happens? The annual interest burden increases by 12.59 trillion won. This is not a small amount. It's equivalent to half of the basic pension budget.
Why did interest rates rise? There are several reasons, but the biggest cause is inflation (rising prices). After the COVID-19 pandemic, prices surged worldwide. Korea was no exception. To control inflation, the Bank of Korea raised the base rate, and government bond rates rose along with it.
These three factors combined to create a big hole in government finances. 13 trillion won was spent on consumption coupons, welfare spending increases by several trillion won annually, and the interest burden has surged. Meanwhile, tax revenue hasn't grown much. Because the economy isn't doing well, corporate performance is sluggish, so corporate tax revenue was less than expected. Personal income hasn't grown much either, so income tax revenue also fell short of expectations.
As a result, while income stays flat, spending has surged, causing the deficit to snowball. The 102 trillion won deficit is the largest on record except for the COVID-19 pandemic period. In 2020 and 2021, even larger deficits occurred due to COVID-19 response spending, but that was during a national disaster. The problem is that even though the pandemic has ended, the deficit is still this large.
National debt is also growing rapidly. National debt, which was 1,141 trillion won at the beginning of the year, increased to 1,259 trillion won by the end of September. It grew by 118 trillion won in 10 months. At this rate, it's expected to easily exceed 1,300 trillion won by year-end.
This is where a vicious cycle begins. When the government borrows → it must pay interest → to pay interest it borrows more → debt grows further → interest burden increases more → it must borrow again. This repeating structure is called the 'snowball effect of debt.'
For example, Mr. B has 5 million won in credit card debt. Monthly interest is 500,000 won. But his monthly salary is only 3 million won, so he doesn't have enough to pay the interest. So he takes a cash advance from another card to pay the interest. Then his debt grows larger, and next month's interest becomes bigger. If this cycle of paying off one debt with another continues, he'll eventually go bankrupt.
It's similar for countries. If the structure of issuing bonds to cover deficits and then issuing more bonds to pay that interest repeats, the finances can collapse. Greece is exactly such a case. In the 2000s, Greece expanded welfare and increased public employees, causing government spending to surge. But revenue didn't grow, deficits kept piling up, and eventually in 2010 they faced a national default crisis.
Of course, the likelihood of Korea immediately becoming like Greece is low. Our country has a large economy, export competitiveness, and sufficient foreign exchange reserves. However, if the current trend continues, it could become a serious problem in 10 or 20 years.
What experts are particularly concerned about is the sustainability of expansionary fiscal policy. It may be necessary for the government to spend money to revive the economy. But if it's excessive, it can backfire. In the short term, consumption may increase and the economy may look good, but in the long term, deteriorating finances can cause bigger problems.
Ultimately, what matters is balance. Economic stimulus is important, but fiscal health must also be maintained. Boosting consumption right now is important, but we must also think about the debt burden future generations will bear.
2️⃣ Economic Terms
📕 Managed Fiscal Balance
Managed fiscal balance is a key indicator showing the government's actual fiscal condition.
- It's the integrated fiscal balance minus social security funds like National Pension and Employment Insurance.
- Since social security funds are savings for the future, they must be excluded to know the government's real fiscal situation.
- A deficit in managed fiscal balance means the government is spending more than it collects in taxes.
📕 Integrated Fiscal Balance
Integrated fiscal balance is the fiscal balance including central government, local governments, and social security funds.
- It's the government's total revenue minus total spending, making it the most comprehensive fiscal indicator.
- Since social security funds like National Pension run surpluses, integrated fiscal balance shows a smaller deficit than managed fiscal balance.
- However, social security fund surpluses are for future payments, so to see the real fiscal situation, you should look at managed fiscal balance.
📕 Mandatory Spending
Mandatory spending is budget that the government must spend according to laws or systems.
- This includes basic pension, child allowances, public employee pensions, and interest costs.
- This spending is called 'mandatory' because the government can't reduce or eliminate it at its discretion.
- As mandatory spending rapidly increases annually due to aging, government fiscal rigidity is increasing.
📕 National Debt
National debt is the total debt owed by central and local governments.
- Funds are mainly borrowed through bond issuance.
- Korea's national debt as of September 2024 was 1,259 trillion won, about 48% of GDP.
- While lower than the OECD average (about 110%), the rapid growth rate is concerning.
3️⃣ Principles and Economic Outlook
✅ The Vicious Cycle of Fiscal Deficits
When fiscal deficits accumulate, debt grows, when debt grows interest burden increases, and to pay interest more debt is incurred, creating a vicious cycle.
First, the imbalance between revenue and spending is deepening. This year's government revenue is expected to be about 480 trillion won, but spending exceeds 544 trillion won. A gap of over 60 trillion won occurs. The problem is that this gap isn't temporary. Welfare spending is set by law and can't be easily reduced, and due to aging it must increase annually. Meanwhile, revenue fluctuates greatly with economic conditions, and can actually decrease when the economy is sluggish like recently. Ultimately, it's a structure where deficits must occur structurally.
Second, rising interest rates are increasing the interest burden. Government bond rates that were in the 1% range in 2021 are now in the 3% range. This means the interest burden on newly issued bonds has more than doubled. A bigger problem is that when previously issued bonds mature and must be reissued, they're subject to the higher rates. For example, if 100 trillion won was borrowed at 1% interest in 2021, annual interest would have been 1 trillion won. But when these bonds mature and are reissued in 2024, they'll be subject to 3% interest and require 3 trillion won annual interest. That's an additional burden of 2 trillion won. With national debt at 1,259 trillion won, if interest rates rise by 1 percentage point, it creates over 12 trillion won in additional annual interest burden.
Third, fiscal rigidity is increasing. The proportion of mandatory spending in the total budget continues to increase. In 2020, mandatory spending was about 50% of the total budget, but now it exceeds 60%. This means only 40% is money the government can freely spend. Even if the economy worsens or a crisis comes, the government's capacity to respond is steadily decreasing.
To break the vicious cycle of fiscal deficits, spending efficiency improvement and revenue expansion must be pursued simultaneously.
✅ Effects and Limitations of Expansionary Fiscal Policy
While expanding government spending helps stimulate the economy, the effect is short-term and can have significant side effects.
First, the economic stimulus effect of consumption coupons is limited. A massive 13 trillion won was invested, but how much additional consumption actually occurred is uncertain. In economics, this is called the 'substitution effect.' People are just replacing money they were going to spend anyway with coupons, so total consumption doesn't really increase much. For example, Mr. A originally planned to shop for 500,000 won this month. The government gave him a 250,000 won coupon. Mr. A buys 250,000 won worth with the coupon and 250,000 won worth with cash. Total consumption is still 500,000 won. Only the government spent 250,000 won.
Second, if expansionary fiscal policy continues, fiscal health deteriorates. When the economy is bad, it's necessary for the government to increase spending. But when the economy recovers, spending should be reduced and debt repaid. The problem is that once spending increases, it's very difficult to reduce. Especially welfare spending is almost impossible to reverse once expanded. When you try to cut benefits people are already receiving, you face enormous resistance. So even when the economy improves, spending stays the same, and when the economy worsens, spending increases more - an asymmetric pattern emerges.
Third, Japan's case provides a warning. After its real estate bubble burst in the early 1990s, Japan made massive fiscal expenditures to revive the economy. It poured enormous amounts of money into infrastructure like roads, bridges, and airports. But the economy didn't recover, and only national debt surged. Currently Japan's national debt is 260% of GDP, the worst among developed countries. There are concerns that if Korea continues its current expansionary fiscal policy, it could follow Japan's path.
Expansionary fiscal policy is only a short-term remedy, and without fundamental economic structural improvement, its effect is limited.
✅ The Burden on Future Generations
Current fiscal deficits and growing national debt are ultimately debt that future generations must repay.
First, the interest burden takes away opportunities from future generations. If national debt is 1,259 trillion won and the average interest rate is 3%, annual interest alone exceeds 37 trillion won. With this money, free childcare could be expanded, university tuition could be lowered, or youth jobs could be created. But if it's all spent on interest, there's no money left to invest in the future. Especially as aging progresses, welfare spending will continue to grow, and with increasing interest burden, what the government can do will steadily decrease.
Second, tax increases or welfare cuts may eventually become unavoidable. There are two ways to cover fiscal deficits: collect more taxes or reduce spending. But both are very difficult choices politically. Tax increases cause public backlash, and welfare cuts face resistance from beneficiaries. Eventually, delaying the problem until a crisis forces drastic measures. That's what happened to Greece. When the fiscal crisis came, they cut pensions by 40%, laid off public employees en masse, and sharply raised taxes. In the process, people suffered tremendously.
Third, intergenerational inequality problems arise. If the current generation receives benefits while future generations must repay that debt, it's not fair. Especially in Korea, due to low birth rates, the future generation's population is rapidly decreasing. Less than 300,000 babies are being born in 2024. When they become adults, they must share the burden of repaying 1,259 trillion won (or much more by then). If the current per capita burden is 25 million won, as population decreases, the per capita burden grows larger.
For future generations, we must practice responsible fiscal management now.
4️⃣ In Conclusion
The national budget deficit exceeding 102 trillion won is not just a number, but a serious warning about the sustainability of Korea's finances.
While fiscal spending has surged due to consumption coupon distribution, welfare expansion, and rising interest rates, tax revenue remains stagnant. If this structure continues, debt will keep growing, interest burden will increase further, and what the government can do will steadily decrease.
The government is pursuing expansionary fiscal policy under the pretext of reviving the economy, but its effect is short-term and limited. Meanwhile, deteriorating fiscal health leaves long-term structural problems. Japan's 'Lost 30 Years' may not be a distant country's story.
The biggest problem is that future generations must ultimately repay this debt. If the next generation that hasn't even been born yet must pay for the benefits we enjoy now, this is intergenerational inequality.
For young professionals and financial beginners, this news may feel distant. But it's directly connected to our future. Only when finances are healthy can the economy be stable, only when the economy is stable can jobs be created, and only then can our lives improve.
On an individual level, we need to take interest in government finances and critically evaluate policies. We must monitor to ensure the government doesn't spend money recklessly, and speak up when necessary. We must examine where our taxes are being spent and whether that spending is really necessary.
The government must prioritize long-term fiscal health over policies that pander to short-term popularity. Before increasing spending, effects and side effects must be carefully examined, and unnecessary spending must be boldly cut. Efforts to increase revenue are also needed. Tax equity must be improved, tax evasion and loopholes prevented, and new revenue sources developed.
Ultimately, fiscal health is not a choice but a necessity. We must not mortgage the future for present comfort. Sustainable fiscal management that allows both us and the next generation to live well together - that's what we need most right now.
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