[사설]Korean-style fiscal rules are necessary, but we must not curb social spending

The Ministry of Strategy and Finance announced a plan to introduce fiscal rules on the 5th and announced that it will manage the ratio of the national debt to GDP within 60% and the fiscal deficit within 3% from 2025. When fiscal indicators such as public debt exceeded this standard, fiscal consolidation measures were mandatory to return to within the limit. Managing fiscal strength is desirable in a situation where fiscal expenditures are rising rapidly due to the Corona 19 incident. Fiscal rules are expected to help improve external reliability, such as the national credit rating.

It is true that the need to actively manage finances has grown. Regarding the national fiscal management plan for 2020-2024, the ratio of national debt to GDP is 43.9%, which is significantly higher than last year (38.1%) with four additional budgets this year. Given the slowdown in growth and the decline in population, this figure will continue to grow significantly, so it is correct to manage it from a long-term perspective. Turkey and Korea are the only countries in the Organization for Economic Cooperation and Development (OECD) that do not have fiscal rules.

However, it is difficult to introduce fiscal rules as a means of blocking important expenses such as welfare. In a situation where low growth has become a new everyday life, welfare-related spending is bound to rise. You need to manage your debt, but don’t be too scared of fiscal deficits to lower your national debt ratio. Excessive tightening could lead to an economic recession, reducing GDP and increasing the debt ratio. It is important to note the strong growth rate of public debt, but there is still room for public finances. As of 2017, the national debt ratio was 136% in the US and 233% in Japan. You don’t have to worry too much about the country’s debts, so you can’t spend money where you need it. There can be no absolute standard of fiscal soundness. This is the reason for the need for a great social debate on whether the fiscal rules are adequate.

When the Ministry of Information and Communications announced the fiscal rules that day, it recognized broad exceptions to their practical application. In situations of severe economic crisis such as war and large-scale disasters, the rules were not applied. It is desirable to provide considerable flexibility in operation while preparing the rules. However, it is controversial that the National Finance Law only includes the bases for the introduction of fiscal rules and that specific figures are entrusted to the executive decree, which is reviewed every five years. This is because if a specific objective is established in the execution decree, which is a subordinate statute, not the law, it can be irregular according to the taste of the regime. It is correct to stipulate standards in national tax laws, such as Germany, where the objective of tax management is specified in the constitution, or France, which is included in the law.