National Assembly Budget Office: "Fiscal Revenue and Expenditure Unmanageable... Need to Start Discussing Fiscal Rules"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyemin] The National Assembly Budget Office has emphasized the necessity of introducing fiscal rules. While expansive fiscal policies are inevitable to respond to the novel coronavirus disease (COVID-19), it is urged to introduce fiscal rules to prepare in advance for the potential deterioration of fiscal soundness.

According to the Budget Office's "2019 Fiscal Year Settlement Analysis" scheduled for the 10th, the office stated, "Using expansive fiscal policies temporarily in the COVID-19 situation is the inherent role of fiscal policy," but also noted, "Efforts to establish and achieve long-term fiscal goals to maintain fiscal sustainability should be pursued simultaneously."

The Budget Office added, "Long-term fiscal goals must be established to respond to changes in demographic and industrial structures, the unification process, and large-scale fiscal demands in climate, environment, and health sectors," and "It is also necessary to discuss specific fiscal measures such as fiscal rules to achieve these goals." This aligns with the recommendation by the Board of Audit and Inspection in June to consider introducing fiscal rules in its "Audit Report on Mid- to Long-term National Fiscal Management and Operation."

The Budget Office mentioned the introduction of fiscal rules because fiscal revenues began to fall short of fiscal expenditures starting last year. Last year's total revenue was 473.1 trillion won, which was 3.3 trillion won less than the total budget including supplementary budgets. In particular, national tax revenues, which had driven total revenues over the past three years, were 1.3 trillion won less than the budget. The world surplus, meaning the money the government collected, used, and had left over in one year, recorded a surplus for the fifth consecutive year at 2.1 trillion won but decreased by 11 trillion won compared to the previous year.

The Budget Office warned, "Total revenues showed a deficit for the first time in three years. In the mid- to long-term, fiscal revenues may find it difficult to increase sufficiently to meet expenditure demands due to factors such as deterioration in social pension and insurance finances."

[Image source=Yonhap News]

The soundness of funds is also on a downward trend. Among 67 funds, the social insurance funds including the Employment Insurance Fund, Government Employees Pension Fund, and Military Pension Fund recorded negative net assets last year. Negative net assets mean that liabilities exceed total assets. In particular, the Employment Insurance Fund had net profits until 2017 but turned to negative net assets after 2018 due to a sharp increase in business expenses. The Employment Insurance Fund recorded a deficit of 2.087 trillion won last year, and the Budget Office forecasts a deficit of 3.2602 trillion won this year.

The Budget Office stated, "For funds whose net assets continue to decrease, they cannot cover business expenses with their own resources and receive transfers from the general account. If this situation continues, it will eventually impose a burden on the national finances."

The Budget Office emphasized, "It is necessary to comprehensively review the income and expenditure structures and fiscal soundness of funds with negative net assets," and "To sufficiently fulfill the necessary roles of national finances with limited resources, the government must continuously consider measures to prevent fiscal leakage and improve operational efficiency."

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