Despite ongoing controversies and criticism even from within the ruling party, the South Korean government is set to introduce the so-called “fiscal soundness rules” to impose risk management limits to the nation’s fiscal spending, officials said Monday.
Recognizing the political and legislative hurdles, the government also hinted at using executive powers to push ahead with the plan, if the related bill fails to obtain parliamentary approval in time.
“(The government) will have to make an advance legislation notice of the revised National Finance Act within this month, in order to submit the corresponding bill to the National Assembly by year-end,” said an official of the Ministry of Economy and Finance.
The revision bill will lay the groundwork for introducing new fiscal soundness rules that were earlier suggested by the government, under the lead of Deputy Prime Minister and Finance Minister Hong Nam-ki.
The new rules -- announced on Oct. 5 -- aim to ensure the country’s mid-term fiscal soundness by keeping the fiscal spending within a designated percentage of gross domestic product.
Under these rules, sovereign debt will have to remain at 60 percent or less of GDP while the consolidated fiscal balance would have to remain above minus 3 percent in 2025.
Should the fiscal deficit exceed the given limit, the government will be obligated to draw up measures to ensure fiscal soundness.
The proposed legislative package, however, has been facing extensive backlash, mostly due to its “loopholes” that allegedly grants exception clauses.
The key point of dispute was the definition of “economic crisis,” in which case the government is to be exempted from the fiscal restrictions.
Critics have argued that the given condition needs to be prescribed in detail -- such as two consecutive quarters of negative economic growth.
“We have collected various feedback from experts and will continue to make the necessary reviews,” said a ministry official.
But the forthcoming government bill is highly likely to stick to its initial version, given that the fiscal chief is holding his ground over the legislation.
On Saturday, the Finance Ministry released a YouTube video in which Hong set out to “give a full proper picture” on the government’s decision to introduce fiscal soundness rules.
The top policymaker’s rare appearance on YouTube -- along with his casual clothing -- indicated his determination to reach out directly to the public, after a series of highly critical news reports and columns on the fiscal plan.
Notwithstanding the minister’s unusually strong push, the given legislation faces hurdles ahead due to continued resistance from both opposition and ruling party politicians.
During the parliamentary audit earlier this month, members of the ruling Democratic Party of Korea argued that it was the wrong time to push for fiscal rules, given the prolonged COVID-19 crisis and the resulting uncertainties.
Amid the pandemic fallout, Seoul’s government has been following an expansionary fiscal road map to help the socially vulnerable and to revitalize the stalled market.
But Minister Hong held fast to his opinion, claiming that the nation’s credit rating may be negatively affected, if the soundness rules fail to take effect.
“We will make best efforts to follow the standard legislative proceeding (that requires parliamentary approval but) there is also a way to effectuate (the fiscal rule) upon administrative authority alone,” said a ministry official.
By Bae Hyun-jung (email@example.com