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“Management within 60% of the national debt ratio and -3% of the integrated fiscal balance”
The standards are lax and there are exceptions.
The standards can also be changed every 5 years … Applicable from the following regime
Vice Premier Hong Nam-ki informs and promotes the introduction of Korean tax rules. Yunhap news
The government announced on the 5th the “ Korean fiscal rule ” that the government will manage the national debt ratio to be within 60% of gross domestic product (GDP) and the integrated fiscal balance does not exceed -3% of GDP every year starting in 2025.
In the wake of the recent and rapid deterioration of the state’s fiscal situation due to the recent and rapid deterioration of the novel coronavirus infection (Corona 19) incident with the continued financial stance of the Moon Jae-in administration, it proposed its own rules for the long-term fiscal soundness management.
However, there are many criticisms that the management standards are too lax and there are several exceptions to the application of the rules, so even if they are followed, it is a ‘blind water rule’. In particular, there are criticisms that the government has set the rules’ standards as an implementing decree that can be changed at any time, and that the application of the rules is delayed until five years later, when the next government is in office. power.
What are the Korean tax rules?
Korean fiscal rules are designed to recognize that the fiscal limit has been exceeded when the ratio of national debt to GDP and the ratio of integrated fiscal balance exceed 60% and -3%, respectively. However, even if the national debt ratio exceeds the 60% benchmark, if the integrated fiscal balance ratio falls below the -3% benchmark to compensate for the excess, the fiscal limit is not exceeded.
When the fiscal limit is exceeded, the government must prepare and implement fiscal consolidation measures so that the national debt ratio and the integrated fiscal balance ratio fall below the threshold. Fiscal consolidation measures include specific management measures for the national debt and fiscal balance, such as spending efficiency and increasing revenue.
Vice Premier Hong Nam-ki and the Minister of Strategy and Finance said: “We have prepared fiscal rules that comprehensively consider the national debt and the integrated fiscal balance taking into account the conditions of Korea.
Government’s medium-term fiscal outlook
Controversy over the effectiveness of the “no strings attached rule”
However, there are already controversies about the effectiveness of these tax rules. This is because there are many exceptions that do not require the fiscal cap to be observed or that can relax the standards, and the enforcement standards are ambiguous.
Indeed, in the event of war, large-scale disaster or financial crisis, the government allowed to waive the application of the limit to actively support finance. In addition, if the economy is found to have slowed based on employment and production indicators, the integrated fiscal balance index will be reduced by 1 percentage point from -3% to -4%. Standard relaxation is possible for up to three consecutive years.
However, the government did not provide a clear criterion for the economic slowdown as to what situation to judge as a crisis. Ahn Il-hwan, the second deputy minister of the Ministry of Science and Technology, said: “We will reveal specific standards later in consultation with experts.”
Here, the fiscal limit is set as an executive decree that can be modified by the government, and the application of the rules is scheduled for 2025, the next time the government takes power, raising questions about whether the will exists. to maintain finances immediately. The government also announced a plan to “reestablish the fiscal limit every five years depending on the situation.”
Professor Kim Woo-cheol from the University of Seoul said: “The fact that the government can change the standards of the fiscal rule without the consent of the National Assembly, in a word, is not binding.” They may not be properly recognized in society, ”he said.
Controversy over the adequacy of the ‘60% national debt ratio’
Some point out that the 60% public debt ratio, which the government has proposed as the standard for the fiscal cap, is too flexible.
According to the government’s medium-term fiscal projections, in 2024, just before the introduction of the fiscal rule, the national debt ratio would reach 58.6%, approaching the fiscal limit. This is interpreted to mean that the government will make no effort to improve fiscal soundness for the time being and will tolerate the 60% level of the public debt ratio expected five years later.
Taking into account the fact that the tax authorities informed President Moon Jae-in at last year’s national fiscal management meeting, “We will manage the national debt ratio to the median level of 40% by 2023,” how much the government fiscal management standards in just one year. Capable of knowing.
However, the government insisted that the 60% domestic bond ratio is a difficult target to maintain today. Vice Minister Ahn Il-hwan said: “In 2024, the national debt ratio is in the high range of 50%, so in order to keep it at 60%, we must make huge improvement efforts.” “I will,” he emphasized.
Sejong = Jaeyong min reporter [email protected]
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