[Q&A] Hong Nam-ki: "Exception Measures Recognized for Disasters in Countries like Germany... Not Introducing PayGo"

Briefing on the Plan to Introduce Korean-style Fiscal Rules on the 5th

[Image source=Yonhap News]

[Asia Economy Reporters Joo Sang-don and Jang Se-hee] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said on the 5th, "Several countries, including Germany, recognize exceptional measures in cases of national disasters such as terrorism or force majeure." The government announced that in the event of war, large-scale disasters, or a global economic crisis, it will exempt the limit application to actively support fiscal management.

At a briefing on the plan to introduce Korea-style fiscal rules at the Government Complex Sejong on the same day, Deputy Prime Minister Hong said, "The pay-as-you-go principle requires presenting corresponding cut resources when submitting bills involving expenditures, but what we announced now does not yet introduce the pay-as-you-go principle."

The following is a Q&A with Deputy Prime Minister Hong.

▲Isn't the national debt limit of 60% of Gross Domestic Product (GDP) too loose?

=During the process of overcoming the COVID-19 crisis this year, four supplementary budgets were passed, and the national debt level was already at 40%. It is expected to rise to about 43.9%, roughly 44%, this year. The integrated fiscal balance has exceeded the initial -1.5% to -4%. The impact of national debt and balance will gradually spread over several years. According to current projections, the national debt will inevitably reach the high 50% range by 2024, so considering these various conditions, we set the national debt ratio at 60% and the integrated fiscal balance at -3%.

▲What about criticism regarding applying the rules from 2025, considering uncertainties like the COVID-19 situation?

=Many countries have introduced fiscal rules during such crises, and similarly, it is generally considered appropriate to apply the rules from the year following the worst period, often allowing a grace period of about five years. Therefore, we will apply the rules from 2025 but will strive to respect and comply with the spirit of these rules until 2021, 2022, 2023, and 2024.

▲There is criticism that delegating to enforcement ordinances weakens legal binding force.

=Regulating by enforcement ordinance does not mean there is no legal binding force. Both laws and enforcement ordinances have legal binding force and are valid. From our perspective, if it were stipulated in the law, the flexible time lag to adjust during crises could be problematic. In this context, reflecting it in the enforcement ordinance seems more appropriate. There are several examples like this, such as setting the legal basis for national tax reduction limits in law and applying the calculation formula in enforcement ordinances.

▲There may be criticisms on both sides that the role of fiscal policy during crises is limited and that the fiscal rules are too loose.

=While strictly adhering to fiscal rules, we have set one or two exceptional measures for national disasters or severe economic crises. Due to the four supplementary budgets this year because of the COVID-19 crisis, these fiscal rules do not apply this year. Regarding the national debt ratio, we will raise it by 25 percentage points over the next three years and reflect it gradually. Secondly, when there are very severe recessions or other factors in a given year, the integrated fiscal balance formula, originally -3%, can be relaxed by 1 percentage point to -4% as a buffer.

▲Have you introduced the pay-as-you-go principle?

=The pay-as-you-go principle requires presenting corresponding cut resources when submitting bills involving expenditures. What we announced is not yet the pay-as-you-go principle. If a bill is submitted that involves massive fiscal expenditures, we will require attaching a specific plan on how to secure the resources. This intent is already reflected in existing laws, but it has not been well observed. We plan to enforce this more strictly going forward. In that case, we think it may require amendments to the National Assembly Act, so we plan to apply it more strictly from that perspective.

▲To what extent has this been coordinated with the political circles?

=We have coordinated to some extent with the ruling party. However, some individual lawmakers have differing opinions on introducing such rules. The government plans to submit the bill amendment to the National Assembly by the end of the year. After submitting the bill, we will consult with both the ruling and opposition parties.

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