재정건전성의 평가 및 정책과제

Abstract

Due to the changes to the composition of population, the number of economically active population has been continuously declining. As a result, fiscal soundness is projected to be toppled as the demand for public spending increases while tax revenue decreases. It is all the more necessary for the public finance to be stable so as to act as insurance when the economy comes to face a crisis. The first part of this study appraises the overall status of the fiscal soundness. The second part analyzes social welfare, education, medical care, and SOC that could possibly offer a solution to restore fiscal soundness. The third part offers assessment and recommendation on fiscal revenue.

Chapter 2: Due to the pessimistic view of the future course of fiscal balance, the tax burden should be maintained at 20% of GDP along with less than 10% discretionary spending of GDP. Chapter 3: Many public-private partnership projects by local governments are exposed to a long-term fiscal risk, and therefore, should be thoroughly reviewed before being implemented. Chapter 4: In order to deal with their massive debts, excessive functions of State-Owned Enterprises (SOEs) must be reduced by introducing competition. Chapter 5: In order to stabilize long-term fiscal balance, there needs to introduce fiscal rules to curtail public expenditures. Chapter 6: As for the model for social welfare, it is ideal to strive to position ourselves somewhere in the middle between Scandinavian countries and Germany. Chapter 7: Public pension systems should be restructured so that the compensatory element of the pension should be covered by private retirement pension. Chapter 8: To stabilize the medical costs, the accountability for the payment process of medical benefits should be enhanced. Chapter 9: Expenditure on education should be adjusted in a flexible way, taking consideration of the number of students, and there needs to be a strict financial division of responsibility between the private and the public. Chapter 10: Since the marginal productivity of SOC investment is low in general, especially so for roads, SOC supply policy must redirect its investment to be more efficiency-oriented. Chapter 11: The proposed order of financing sources for the increasing social welfare costs is higher social insurance contribution, then more income tax burden followed by higher consumption tax. Chapter 12: Utilizing CPI as inflation-linked index is recommendable not only for expanding the tax base but also for better redistribution effects. Chapter 13: Value Added Tax (VAT) is not so regressive or could be even progressive if we include the indirect effect such as consumption changes of each income bracket and the redistribution effect of the higher expenditure on the social welfare based on the increased revenue.

The conclusions are as follows. First, it is of utmost importance that fiscal soundness to be maintained since it has the potential to become dangerous, especially when we consider the local governments and the SOEs. Second, it is difficult to maintain the long-term fiscal soundness only with restructuring expenditure side, so the expansion of the revenue side should also be considered. Third, there must be a strict demarcation between what the public finance is responsible for and what the private sector must take over. Fourth, since government expenditures must be economized, priority should be set among expenditures and there also needs to be flexibility in setting the right amount to spend. Fifth, financial accountability must be guaranteed in order to safeguard the future fiscal balance especially in the fields of local government, SOEs, and medical service. Sixth, institutionalization is pivotal in obtaining the fiscal soundness, and implementation of fiscal rules is no longer a choice but a necessity. It is time to lay a foundation for the long-term fiscal soundness for the sake of our next generation.