[Yoon Administration Economy] New Fiscal Rules Legislation and Education Grants Reform... Shift to 'Sound Fiscal' Policy

New Government Economic Policy Direction

[Asia Economy Sejong=Reporter Kwon Haeyoung] The Yoon Seok-yeol administration is shifting its fiscal management policy to 'sound finance' and will legislate fiscal rules and undertake strong expenditure restructuring. The government plans to reform the education grant system by expanding the use of local education finance grants (education grants), which have been limited to elementary, middle, and high schools, to higher education such as universities, but will not pursue a reduction in the grant rate.

The government announced these details on the 16th in the 'New Government Economic Policy Direction.'

First, through the National Fiscal Strategy Meeting, the fiscal policy will be fully shifted to 'sound finance.' During the new government's term (2022?2027), management targets for fiscal balance and national debt will be set, and to achieve these, various fiscal innovation measures will be devised, including revitalizing private investment, diversifying funding sources such as expanding the use of state-owned assets, and restructuring expenditures.

The government will also establish new fiscal rule standards and push for legislation. Based on internationally used balance rules, the fiscal rules will be simplified and binding standards will be prepared. Previously, the Korean-style fiscal rules created by the former government managed the national debt ratio relative to GDP at 60% and the integrated fiscal balance deficit ratio within 3%, but these standards have been criticized for being too loose. Parliamentary discussions have also seen no progress for over two years. The government plans to create detailed new fiscal rule standards and pursue legislation in the second half of this year. Strong restructuring will be pursued not only for discretionary spending but also for mandatory and rigid expenditures, which are difficult to reduce by law.

Additionally, the education grant system will be reformed. According to the Education Grants Act enacted in 1971, 20.79% of domestic tax revenue is automatically allocated as education grants to fund education for kindergartens, elementary, middle, and high schools nationwide. Considering the decline in the school-age population of elementary, middle, and high school students and the demand for investment in nurturing future talents, the government is promoting a plan to expand the use of grants to higher education such as universities. Although the number of elementary, middle, and high school students is decreasing, education grants continue to increase, leading to inefficient budget operation, which this reform aims to improve. However, a reduction in the grant rate was not included in this economic policy announcement.

Regarding this, Bang Gi-seon, First Vice Minister of the Ministry of Economy and Finance, explained, "We are not touching the legal grant rate," adding, "Since education grants have not been used for higher education until now, expanding them to higher education is meaningful."

The threshold amount for preliminary feasibility studies (PFS) will also be expanded from the current 50 billion won to 100 billion won, but only for social overhead capital (SOC) and research and development (R&D). The specific characteristics of each project and various social benefits will also be reflected in the PFS.

Furthermore, the government will establish a cross-ministerial performance management system to standardize the timing and procedures of expenditure restructuring and evaluation systems for low-performance projects. To secure the medium- to long-term sustainability of finances, a 'Fiscal Vision 2050 (tentative name)' will also be established. This is a medium- to long-term plan beyond the five-year national fiscal management plan, with a concrete action plan to be prepared by the end of 2022 and announced after a public hearing in early 2023.

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