Choo Kyung-ho Proposes Fiscal Responsibility Act to Keep National Debt Ratio Below 45%

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hye-min] On the 7th, Chu Kyung-ho, a member of the Future United Party, announced that he has proposed the legislation of fiscal rules as the first bill of the 21st National Assembly, aiming to maintain the national debt ratio below 45%.

Fiscal rules are a fiscal management method that sets certain target figures for fiscal aggregates such as fiscal balance, fiscal expenditure, and national debt, and requires compliance with them. Other countries have introduced them through constitutions, laws, or internal government rules and regulations.

The amendment to the National Finance Act proposed by Rep. Chu aims to maintain the national debt ratio at 45% or below and the managed fiscal balance deficit ratio at 3% or below.

In cases where the national debt ratio exceeds 45% due to reasons such as war, disaster, or mass unemployment, the surplus funds must be prioritized for national debt repayment, and if repayment is not possible, a plan to reduce the national debt over five years must be compulsorily established. Surplus funds refer to the sum of excess tax revenue and unspent budget.

Additionally, every two years, long-term financial projections for the eight major social insurances and long-term fiscal outlooks for national finances must be conducted and the results disclosed. Based on this, the appropriateness of the national debt ratio is to be reviewed and submitted to the National Assembly, and the government must attach a public sector debt management plan to the national fiscal management plan submitted to the National Assembly.

According to the International Monetary Fund (IMF), a total of 85 countries, including 29 advanced countries such as the United Kingdom, Germany, and Sweden, 33 developing countries, and 23 low-income countries, have introduced fiscal rules to limit excessive fiscal abuse by governments. Rep. Chu said, "If this amendment passes and fiscal rules are introduced in Korea, it will be possible to control the government's reckless fiscal spending."

Rep. Chu stated that if the Moon Jae-in administration's third supplementary budget passes the National Assembly as originally proposed, the national debt ratio is expected to increase by about 7.7 percentage points over approximately four years. This is the fastest increase since statistics began in 1997.

According to the Bank for International Settlements (BIS), Korea's total debt, including household debt, corporate and public enterprise debt, and pension liabilities not reflected in the national debt, amounted to 4,540 trillion won as of the end of last year, reaching 237% of the gross domestic product (GDP). Rep. Chu explained that the rise in the national debt ratio could start with foreign investors withdrawing investment funds and selling government bonds, leading to a decline in the value of the Korean won and a stock market crash.

Rep. Chu said, "According to the third supplementary budget, the increase in Korea's national debt this year will reach a record high of 100 trillion won. While expanding national finances is necessary to revive the struggling economy of ordinary citizens due to COVID-19, it is a serious problem that there is no standard to manage the rapidly increasing national debt. This opportunity urgently requires social discussion on fiscal rules and long-term fiscal soundness levels."

This content was produced with the assistance of AI translation services.