Deterioration of National Fiscal Competitiveness... Ruling Party and Government Focus on Persuading Opposition on 'Fiscal Rules'

The Economic and Fiscal Subcommittee to Discuss on the 27th
Key Issue: Whether the Democratic Party Can Be Persuaded to Oppose

The National Assembly's Planning and Finance Committee is discussing the National Finance Act to establish fiscal rules.

According to the National Assembly on the 23rd, the Economic and Fiscal Subcommittee of the Planning and Finance Committee decided to first submit the amendment bill to the National Finance Act on the 27th. Fiscal rules are norms that manage fiscal soundness indicators so that they do not exceed a certain level. The fiscal rules being discussed in the National Assembly include limiting the annual deficit of the management fiscal balance to within 3% of the Gross Domestic Product (GDP), and managing the deficit ratio within 2% if the national debt ratio to GDP exceeds 60%.

Ryu Seong-geol, the ruling party's secretary of the Planning and Finance Committee and a member of the People Power Party, said about the submission of this agenda, "You can say that both the ruling and opposition parties agree on the necessity and importance of fiscal rules."

[Image source=Yonhap News]

The People Power Party presented indicators showing that the country's fiscal competitiveness is deteriorating. In the recent national competitiveness evaluation index released by the International Institute for Management Development (IMD) in Switzerland, South Korea's ranking dropped one place from 27th to 28th. The fiscal sector within government efficiency fell sharply from 32nd to 40th, which contributed to the decline. In terms of fiscal indicators, rankings for key indicators such as fiscal balance relative to GDP and the real increase rate of general government debt all showed a downward trend. On the other hand, the economic performance ranking rose from 22nd to 14th this year. Corporate efficiency and infrastructure rankings remained the same as last year at 33rd and 16th, respectively. The IMD national competitiveness ranking, published since 1989, evaluates and ranks 20 subcategories in four areas: economic performance, government efficiency, corporate efficiency, and infrastructure. The number of countries surveyed changes every year.

At the party floor meeting that day, Lee Yang-su, the senior deputy representative, said, "In the national competitiveness evaluation announced by IMD, our country ranked 28th, lower than Malaysia and Bahrain," adding, "Although economic performance such as employment and inflation recorded the highest rank ever at 14th, the fiscal sector dropped 8 places to 40th due to worsening fiscal soundness." He continued, "The Democratic Party, despite the economic downturn and tax revenue shortfall worsening the national fiscal balance, not only refuses to discuss the amendment to the fiscal rules but also insists on an additional supplementary budget of 35 trillion won, desperately trying to spend money before the general election," and said, "Irresponsible budget formulation that spends first and thinks later is a shortcut to ruining the national economy. We urge cooperation to break fiscal addiction and supplementary budget addiction and to recover the Korean economy even now."

[Image source=Yonhap News]

Whether the Democratic Party can be persuaded remains uncertain. The Democratic Party has consistently opposed the introduction of fiscal rules. They argue that since the conservative government is implementing tight fiscal policies, the introduction of fiscal rules is not urgent. Yoo Dong-su, the opposition party's secretary of the Planning and Finance Committee and a member of the Democratic Party, said, "I agree with the legislative intent, but it is questionable whether individual lawmakers can be persuaded."

There is also a forecast that it will be difficult for the Democratic Party to actively support the introduction of fiscal rules given that Democratic Party leader Lee Jae-myung mentioned a 35 trillion won supplementary budget. On the 19th, in a negotiation group representative speech, Lee said, "It is time for fiscal policy to play a role in economic recovery even if it means increasing national debt somewhat," and urged, "(The government and ruling party) to understand the necessity of the supplementary budget and gather wisdom."

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