Fiscal Rules Unlikely to Pass the National Assembly This Year

Increased Spending Burden Due to Expanded Fiscal Policy
Ruling Party: "Discussion After Overcoming COVID-19 Crisis... Now Is Premature"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The government's fiscal rules, established as a safeguard to maintain fiscal soundness, appear to be drifting in the National Assembly. The government submitted a revision bill to the National Assembly last December that included fiscal rules in the National Finance Act, but with mini by-elections equivalent to a general election and the upcoming presidential election next year, it has become a situation where it cannot even be mentioned. In particular, as demands for legislation on compensation support for small business owners and the establishment of a Small Business Solidarity Fund have increased, the expansionary fiscal stance is considered to have become more dominant.

Ko Yong-jin, the spokesperson for the National Assembly's Strategy and Finance Committee from the Democratic Party of Korea, said in a phone interview with Asia Economy on the 21st, "A significant number of party members agree that fiscal rules should be discussed after overcoming the COVID-19 crisis," adding, "We need to consider the global economy and our situation, but it seems difficult to have a sudden discussion within this year."

The ruling party's stance contrasts with that of the government, which prepared the fiscal rules bill. The Ministry of Economy and Finance has expressed its intention to discuss fiscal rules by merging them with lawmakers' bills during the February extraordinary session of the National Assembly. Kim Yong-beom, the first vice minister of the Ministry of Economy and Finance, has said, "Several lawmakers' bills have been submitted to the National Assembly, so discussions will be merged and held from February," and "The government will actively explain and participate in the legislative review process."

A government official said, "There have been no discussions between the ruling party and the government regarding fiscal rules since the government proposal was submitted." The ruling party's reluctance to discuss fiscal rules is closely related to the increased scale of fiscal spending due to COVID-19. They believe that fiscal soundness cannot be considered during a period of expansionary fiscal policy.

The Ministry of Economy and Finance has poured about 570 trillion won to respond to the prolonged COVID-19 pandemic. Of this, direct support such as fiscal and financial aid amounts to about 310 trillion won. Since the government has pledged to actively support economic vitality through expansionary fiscal policy, the possibility of additional support still remains. In particular, additional support methods for small business owners, youth, and women are likely to include direct support, which has a significant short-term effect.

Earlier, the Ministry of Economy and Finance also published the legislative notice in the official gazette without prior announcement. Since the timing coincided with the budget bill process, they judged that pursuing the two conflicting goals of 'expansionary fiscal policy' and 'fiscal soundness' could potentially cause controversy.

As spending increased due to expansionary fiscal policy, the fiscal burden has grown even larger. According to the 'January 2021 Fiscal Trend' announced by the Ministry of Economy and Finance on the 12th, fiscal deficits reached 98 trillion won by November last year due to increased COVID-19 response spending. National debt reached 826.2 trillion won due to the execution of the 4th supplementary budget. Professor Kim Sang-bong of Hansung University’s Department of Economics expressed concern, saying, "Not introducing fiscal rules means the government intends to use national finances at will," and "If the current level of expansionary fiscal policy continues, the future fiscal burden could increase to an unmanageable level."

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