Gyeonggi Response Secret Weapon(?) 'Early Fiscal Execution'... National Assembly "Interest Costs Must Now Be Considered"

Concerns Over Excessive Early Fiscal Execution in the 2021 Settlement Review Report

[Asia Economy Reporter Naju-seok] Caution has been raised regarding the 'early fiscal spending' card, which appears like a panacea whenever concerns about economic contraction arise. Not only does it increase the burden of economic response in the second half of the year, but spending before tax revenues are collected also raises concerns about interest burdens.

According to the National Assembly Legislative Information System on the 14th, the 2021 settlement audit report pointed out, "The government has significantly exceeded its early spending targets over the past four years, and it is necessary to manage the scale of early spending at an appropriate level considering second-half fiscal demand and interest costs arising from early spending."

As a result of the settlement, out of the 293.3 trillion KRW fiscal spending in 2021, the government aimed to execute 63.9%, or 187.4 trillion KRW, in the first half of the year. However, the actual execution rate was 59.3%, amounting to 203.2 trillion KRW. This exceeded the original target by 5.4 percentage points.

The issue of exceeding early fiscal spending targets is not limited to this year. Between 2018 and 2020, the early fiscal spending rate in the first half of the year exceeded the target by more than 4 percentage points annually.

As past cases show, early fiscal spending is a method frequently used by the government. Its advantage lies in the ability to proactively respond to economic fluctuations under conditions where the total amount of fiscal expenditure is limited.

However, the Special Committee on Budget and Accounts expressed concern that "while the fiscal response function in the first half of the year expands, the fiscal response function in the second half may be constrained." This means there could be a shortage of fiscal resources in the second half compared to the first half.

In the past, the National Assembly Budget Office warned in a report that "early fiscal spending could lead to a fiscal cliff in the second half, and supplementary budgets may become inevitable to compensate for the second-half fiscal cliff."

Interest burden is also a point of concern. The Budget and Accounts Committee pointed out, "There are drawbacks such as increased interest costs due to the government's expanded temporary borrowing from the Bank of Korea to secure funds for early spending." According to the Budget Office, in 2019, the government incurred costs of 164.8 billion KRW from temporary borrowings and fiscal stability bonds issued by the Bank of Korea. In the current environment of rising interest rates, such interest costs are likely to surge significantly.

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