[2022 Economic Outlook Survey] "Next Government's Top Priority: Supporting Private Sector-Led Economic Growth"

70% Identify as Top Priority
Message to Minimize Government Intervention
'Government-led Recovery' at 9.9%

64% Say 'Need to Address Polarization'

Burden of Increasing National Debt Ratio
'Need to Improve Fiscal Soundness' 26%

56% Favor 'Minimal Fiscal Spending' as Next Government's Fiscal Policy

[Sejong=Asia Economy Reporter Joo Sang-don] Economic experts have called for the next government, launching next year, to prioritize “formulating policies centered on the private sector” as the top economic policy task. They unanimously agreed that the government should play a supportive role through policies so that the private sector can lead economic growth.

In a survey conducted on the 1st by Asia Economy targeting 35 domestic economic experts including academic society heads, heads of national and private economic research institutes, economic organization leaders, and CEOs of financial institutions, 58.8% of respondents selected “supporting acceleration of private sector-led economic growth” as the “top economic policy task for the next government.”

This question allowed overlapping responses ranked as first and second priorities. Considering this, the proportion of experts who chose “supporting acceleration of private sector-led economic growth” as the top policy task rises to 70.8%.

Such responses are interpreted as a message that the limitations of government-led policies are clear and should not be repeated by the next administration. The current government has expanded public jobs through fiscal spending, but many evaluations indicate that the effect on creating quality jobs has been minimal. This trend is also confirmed by the fact that only 9.9% of experts (based on overlapping responses) believe that “government-led economic recovery through expanded transfer income such as disaster relief payments” is necessary.

Additionally, 64.6% of experts identified “addressing polarization” as an economic policy task for the next government. According to Statistics Korea, the income gap between the bottom 20% (1st quintile) and the top 20% (5th quintile) in the third quarter of this year is 5.3 times. While market income has increased due to economic recovery, the effect of the national support fund of 250,000 KRW paid to 88% of the population is significant. Income disparity accelerates in a vicious cycle of inequality. The widening income gap leads to asset inequality, residential area and housing type inequality, and educational inequality, which ultimately results in further income disparity.

Reflecting recent inflation concerns, 28.8% of respondents cited price stability as the top priority. The consumer price inflation rate in October this year was 3.2%, marking the highest in 9 years and 9 months, indicating a serious upward trend in prices.

Responses indicating the need to improve fiscal soundness accounted for 25.9%. This reflects concerns that the national debt ratio, which has increased significantly since COVID-19, will become a burden on the economy. The national debt ratio to GDP recorded 47.3% this year and is expected to rise sharply to 58.8% by 2025. To respond to structural fiscal demands in the mid-to-long term, it is necessary to actively control the steep increase in national debt. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki recently met with the annual consultation team from the international credit rating agency Standard & Poor’s (S&P) and emphasized, “We will continue efforts to stabilize fiscal management through efficient fiscal operation,” and “We will strive to ensure the enactment of fiscal rules legislation currently under discussion in the National Assembly and strengthen fiscal management efforts based on this.”

Regarding the fiscal management direction of the next government, there was a strong voice for balanced fiscal policy. 55.9% of experts chose “minimal expansion of fiscal spending” as the fiscal management stance the next government should pursue, and 26.5% selected “maintaining balanced fiscal policy.” In contrast, only 8.8% of experts responded that “fiscal spending should be significantly expanded.” Regarding the next government’s tax policy, nearly half of the experts (46.9%) answered that tax increases are necessary.

Given the unavoidable expansion of welfare spending due to overcoming COVID-19 and low birthrate and aging population, additional funding is urgently needed, and tax increases are necessary instead of issuing government bonds that would worsen fiscal soundness. However, opinions were divided on the method of tax increases. While some diagnosed that taxing the wealthy is realistic as it could worsen polarization, there was also a considerable opinion that tax bases should be expanded to include exempted taxpayers. Some also raised the need for tax cuts in specific areas. They argued that alongside expanding the tax base by identifying omitted income, active tax cut measures such as investment tax credits to promote corporate investment are needed to secure growth engines and expand private consumption.

Editor's Note
Kang Moon-seong, Professor, School of International Studies, Korea University; Kang Sung-jin, Professor, Department of Economics, Korea University; Kwon Kwang-seok, CEO, Woori Bank; Kwon Jun-hak, CEO, NH Nonghyup Bank; Kwon Tae-shin, Vice Chairman, Federation of Korean Industries; Kim Ki-moon, Chairman, Korea Federation of SMEs; Kim Sang-chul, CEO, Seoul Welfare Foundation and Professor, Department of Social Welfare, Hansei University; Kim Jung-tae, Chairman, Hana Financial Group; Kim Jong-sook, President, Korean Association of Women Economists; Kim Jin-il, Professor, Department of Economics, Korea University; Kim Heung-jong, President, Korea Institute for International Economic Policy (KIEP); Park Sung-ho, CEO, Hana Bank; Park Cheon-il, Director, International Trade and Commerce Research Institute, Korea International Trade Association; Sung Myung-jae, President, Korean Association of Public Finance and Professor, Department of Economics, Hongik University; Son Byung-hwan, CEO, NH Nonghyup Financial Group; Son Tae-seung, Chairman, Woori Financial Group; Song Ui-young, Professor, Department of Economics, Sogang University; Shin Kwan-ho, Professor, Department of Economics, Korea University; Yoo Jong-il, Dean, KDI School of Public Policy and Management; Yoon Jong-kyu, Chairman, KB Financial Group; Lee Geun, Vice Chairman, National Economic Advisory Council; Lee Dong-geun, Vice Chairman, Korea Employers Federation; Lee In-sil, Professor, Graduate School of Economics, Sogang University; Lee In-ho, Professor, Department of Economics, Seoul National University; Lee Jong-hwa, Professor, Department of Economics, Korea University; Lim Jin, Director, SGI, Korea Chamber of Commerce and Industry; Jang Se-jin, Director, Seoul Institute for Social Economy; Jeon Kwang-woo, Chairman, World Economy Research Institute; Jung Se-eun, Professor, Department of Economics, Chungnam National University; Cho Yong-byeong, Chairman, Shinhan Financial Group; Joo Hyun, President, Korea Institute for Industrial Economics and Trade; Jin Ok-dong, CEO, Shinhan Bank; Heo Yong-seok, President, Hyundai Research Institute; Heo In, CEO, KB Kookmin Bank; Hong Jang-pyo, President, Korea Development Institute (KDI)