This report compares the fiscal outlook by NABO with the administrative plan and analyzes the ｢2015 Budget Bill｣ and the ｢2014~2018 National Fiscal Management Plan｣ in terms of financial strategy, fiscal risks, national debt, and the allocation of finances.
In between 2014 and 2018, due to the differences in the outlook for current balance growth (2015~2018: NABO 5.7%, the administration 6.1%) and in the elasticity of national taxes, there was a gap of △KRW 25.5 trillion in gross expenditure stemming from the differences of △KRW 46.9 trillion in gross income and in increases in mandatory spending (NABO 6.4%, the administration 7.1%). Accordingly, NABO forecasted national debt to increase from KRW 527.0 trillion (35.3% of the GDP) in 2014 to KRW 706.6 trillion (37.9%) in 2018, while the administration expected it to grow from KRW 527.0 trillion (35.1%) in 2014 to KRW 691.6 trillion (36.3%) in 2018.
After comprehensively considering the various financial factors, including the national debt for covering fiscal deficits and the fiscal impulse indicator, it is evaluated that the 「2015 Budget Bill」 has shifted from its neutral stance from last year to an expansive stance this year. However, this report pointed out that a prudent review of the economic trends is necessary during the budget execution stages. Moreover, while the fiscal strategy for 2016~2018 is to take a more stringent approach, which seems appropriate considering the economic trends, questions have been raised about its implementation as the government has shown in most cases to take a stringent approach for the last 3 years of its periodic 5-year national fiscal management plan.
The 「2015 Budget Bill」 shows a continued increase of the budget in welfare, following the implementation of national initiatives, and in economic measures that recently had been declining. However, the budget allocations across these diverse fields improved growth by about 0.19%p, 0.11%p lower than that of 2013 (supplementary budget). To maximize the effectiveness of the national finances through strategic allocations of the limited financial sources in the future, it was requested to clearly identify the directionality in allocating the budget in the national fiscal management plan.
This report analyzed the issue of rigid fiscal management due to mandatory spending increases that have been sparked by the continuing low tax revenue in the midst of the lingering poor economy and the future fiscal risk factors such as the increase in interest expenses on the national debt that cause fiscal deficit.
Moreover, while Korea's national debt in 2015 is equivalent to about 36.2% of the GDP, relatively lower than that of the OECD average (109.5% in 2013), this report highlighted the need to secure fiscal soundness through the proactive management of the long- and short-term financial risks when considering Korea's unique variables, including the pace of debt increase, the level of debt by public institutions and regional government bodies, the aging population, the open economy, and the potential reunification.
To this end, thisreport proposes various considerations, such as raising the predictability of the medium-term economic outlook, legislating fiscal policies, improving the sustainability and efficiency of expenditures on welfare, stimulating private investments, improving the soundness of regional finances, and carrying out long-term financial forecasts.
In between 2014 and 2018, due to the differences in the outlook for current balance growth (2015~2018: NABO 5.7%, the administration 6.1%) and in the elasticity of national taxes, there was a gap of △KRW 25.5 trillion in gross expenditure stemming from the differences of △KRW 46.9 trillion in gross income and in increases in mandatory spending (NABO 6.4%, the administration 7.1%). Accordingly, NABO forecasted national debt to increase from KRW 527.0 trillion (35.3% of the GDP) in 2014 to KRW 706.6 trillion (37.9%) in 2018, while the administration expected it to grow from KRW 527.0 trillion (35.1%) in 2014 to KRW 691.6 trillion (36.3%) in 2018.
After comprehensively considering the various financial factors, including the national debt for covering fiscal deficits and the fiscal impulse indicator, it is evaluated that the 「2015 Budget Bill」 has shifted from its neutral stance from last year to an expansive stance this year. However, this report pointed out that a prudent review of the economic trends is necessary during the budget execution stages. Moreover, while the fiscal strategy for 2016~2018 is to take a more stringent approach, which seems appropriate considering the economic trends, questions have been raised about its implementation as the government has shown in most cases to take a stringent approach for the last 3 years of its periodic 5-year national fiscal management plan.
The 「2015 Budget Bill」 shows a continued increase of the budget in welfare, following the implementation of national initiatives, and in economic measures that recently had been declining. However, the budget allocations across these diverse fields improved growth by about 0.19%p, 0.11%p lower than that of 2013 (supplementary budget). To maximize the effectiveness of the national finances through strategic allocations of the limited financial sources in the future, it was requested to clearly identify the directionality in allocating the budget in the national fiscal management plan.
This report analyzed the issue of rigid fiscal management due to mandatory spending increases that have been sparked by the continuing low tax revenue in the midst of the lingering poor economy and the future fiscal risk factors such as the increase in interest expenses on the national debt that cause fiscal deficit.
Moreover, while Korea's national debt in 2015 is equivalent to about 36.2% of the GDP, relatively lower than that of the OECD average (109.5% in 2013), this report highlighted the need to secure fiscal soundness through the proactive management of the long- and short-term financial risks when considering Korea's unique variables, including the pace of debt increase, the level of debt by public institutions and regional government bodies, the aging population, the open economy, and the potential reunification.
To this end, thisreport proposes various considerations, such as raising the predictability of the medium-term economic outlook, legislating fiscal policies, improving the sustainability and efficiency of expenditures on welfare, stimulating private investments, improving the soundness of regional finances, and carrying out long-term financial forecasts.