The Korean government will accelerate fiscal reforms to better manage its tax revenue and budget through efficient capital allocation and planning as a means to boost its preparedness against slower growth and higher national debt.
In a meeting presided over by President Park Geun-hye at Cheong Wa Dae on Friday, the government will seek stronger fiscal discipline to ensure that its taxpayer money will not be wasted in the face of growing economic uncertainties.
The Ministry of Finance said that the government will aim to achieve efficiency in balancing its budget and spending through a set of special measures, based on its mid-to-long term fiscal outlooks.
“Discussions at the meeting included ways to accomplish reforms in the four sectors (of labor, public, finance and education), preemptively counter fiscal risks and strategically manage its spending in the mid-to-long term,” the Finance Ministry said in a press release.
“The government’s fiscal spending will primary focus on creating jobs and increasing human capital through efficient capital allocation and consolidation.”
This will involve consolidating the management of pension spending outlooks by Korea’s four public pension funds, including the National Pension Service and Teachers’ Pension. Also, the government will carry out stronger feasibility studies of projects to evaluate their worthiness.
The government’s fiscal prudence comes as it projects that Asia’s fourth-largest economy is headed for tougher conditions with national debt and inequality to grow, while productivity and growth further fall.
“Korea can no longer be reassured with an outlook that points to (negative) changes in demographics, growth and welfare,” the Finance Ministry noted.
Its 2060 outlook report shows that Korea’s debt in proportion to gross domestic product will increase to around 90 percent, currently from about 40 percent, in 44 years, should Korea continue its low growth with increasing welfare spending.
It further noted that Korea will face slower productivity on ageing population in 2017, with the income gap between regular and nonregular employees further widening. The country’s conventional manufacturers such as steel and shipbuilders are finding it difficult to secure new growth through innovation, according to the Finance Ministry.
The pension fund for people’s postretirement is expected to run out of money by 2060, as well with the public health insurance unable to finance medical costs beginning 2025.
The ministry noted that Korea’s situation has become similar to that of Japan and Sweden some 20 years ago, and that the government will need to benchmark Sweden on ways the European country overcame its socioeconomic difficulties through reforms.
Japan’s growth decreased from 5.57 percent in 1990 to 0.17 percent in 1993, while that of Sweden fell from 0.75 percent to negative 2 percent in the same period.
However, Sweden’s aggressive social and economic reforms resulted in lower debt and stronger fiscal discipline with its debt-to-GDP ratio standing at 43.9 percent in 2015, down from 46.3 percent in 1990. Japan, on the other hand, saw its ratio increase to 246 percent last year from 67 percent in 1990, as it held off reforms, only increasing spending on welfare.
By Park Hyong-ki (firstname.lastname@example.org)