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I will present a plan to introduce Korean tax rules.
Initially, the day before the Chuseok holiday started, we were going to announce it on the Tuesday of the previous week. I would like to announce that it was decided that it is more desirable to do it on the first day immediately after the vacation than the first day after the vacation, rather than just before the vacation season.
My fellow citizens! With the unprecedented outbreak of the corona pandemic this year, the world economy is now facing the biggest economic recession since the Great Depression.
Most of the OECD member countries in the G20 recorded negative growth in the first half of the year, and there was also a difference in the decline in Korea, but this could not be avoided.
Faced with this economic crisis in the crown, we had two options.
One is whether finance will endure a temporary deterioration in fiscal soundness as the last bastion to overcome the crown crisis, but will actively respond to overcome the damage and recover the economy through the expansion of finance, or the other is concerned about the national debt and fiscal balance. That was whether he would stick with his usual tax role for the sake of soundness.
The government determined that the first, or expanded fiscal measures, was a better option in terms of allowing the virtuous cycle of fiscal activity, crisis relief, economic recovery, and fiscal restoration to operate.
And most OECD member countries and G20 countries have adopted these broader fiscal measures in the framework of international cooperation.
In particular, in the case of Korea, we are working hard to minimize the damage to the crown and overcome the economic crisis through preventive measures such as the formation of additional supplementary accounts four times a year in the face of the unprecedented wind of the crisis of the crown, and we are moving forward amid tough economic conditions. Additionally, international organizations such as the OECD and the IMF, as well as global credit rating agencies, are assessing that our expanded fiscal measures and response to the crisis were adequate.
However, as you well know, in the process it was inevitable that the national debt increased and the fiscal balance worsened.
Summarizing our finances compared to other countries in a few words, it can be said that while the absolute size of the national debt and the analogy are relatively good and affordable, it is necessary to be particularly attentive to the speed at which the debt and the Income deteriorates in the process of overcoming the crisis. .
As of 2018, Korea’s general government debt ratio is 40% of GDP, less than half the OECD average of 108.9%, which is relatively better than that of major countries.
Furthermore, according to the IMF, in the process of overcoming the Corona 19 crisis, the national debt ratio will rise as most major countries adopt expanded fiscal policies. Compared to the previous year, Korea is expected to increase by 7.6 percentage points and the major developed countries on average by more than 20 percentage points. Therefore, it has been analyzed that Korea has a markedly small increase in the debt ratio in the process of responding to this crisis.
As a result, all of this was contributed by our accumulated fiscal capacity, and about 20 trillion won of the supplemental support in the process of organizing additional budgets of 67 trillion won was covered through a strong restructuring of spending in the existing budget. . It is also due to hard work efforts to minimize the scale of deficit government bond issuance.
However, as mentioned above, taking into account the deterioration of the national debt and the fiscal balance in the process of overcoming the crisis, responding to the problem of fiscal soundness is also an important agenda.
The government’s national debt ratio is expected to increase by 2.6 percentage points to 43.9% this year based on the government’s calculation of T1 debt, and the management fiscal balance is expected to increase by -2.8% last year to -6% this year. It’s possible.
In addition, the temporary deterioration of debt and income during the crown crisis will inevitably affect national debt and income in the coming years, therefore, in the medium term, the debt ratio is expected to rise to the high level. 50% in 2024.
In particular, in the medium and long term, the management of fiscal soundness and the accumulation of fiscal capacity are essential in the medium and long term, considering various factors such as changes in the population structure, such as the lower birth rate and faster aging of the population, progress in maturing well-being and the characteristics of inter-Korean relations.
This is the background and the reason for introducing a Korean fiscal policy that suits our situation.
Around 100 countries around the world, focusing on the major advanced countries, have introduced fiscal rules that adjust the total amount of the fiscal balance to manage fiscal robustness, and the forms are designed in various ways to suit individual country conditions. such as income rules, expense rules, income and expense rules, and debt rules. And it has been working.
Korea also wants to introduce fiscal rules that suit our situation.
I would like to mention that the basic design and the design of the fiscal rules were revised under the principle that the fiscal rules were prepared to ensure and maintain a reasonable fiscal soundness, but the fiscal role is not restricted in the event of a national disaster. serious.
The government intends to introduce the following Korean fiscal rules, which combine the debt and income and expense rules, taking into account our financial conditions and current fiscal conditions, while using the debt and income and expense variables that are most reflected commonly in the international community.
That is, the public debt ratio is based on 60% and the consolidated fiscal balance is -3%, however, even if one side exceeds the threshold, the other falls below the threshold, so it can be met with the standard.
The three key elements of these Korean tax rules and the establishment of their standard values are as follows.
First, considering the current national debt ratio, medium to long-term fiscal conditions, and the growing demand for welfare spending, we have set the standard for the national debt ratio at 60%.
In the course of overcoming the crown crisis, we have taken into account the situation in which the national debt has partially increased and the domino effects will be inevitable in the coming years and, in particular, we have taken into account the fact that the medium-term plan shows that the national debt ratio in 2024 will be at the end of 50%.
Second, since the fiscal balance is used universally in the international community, the standard is set at -3% based on this. In the process of overcoming the crisis in the crown, the integrated fiscal balance has already exceeded -3% to -4%. Taking into account the event that lies ahead, we also consider future tax conditions and profit and loss forecast.
