Fiscal Instability Due to Aging... "Heavy Burden on Korea's Future Generations, Fiscal Reform Needed"

National Economic Advisory Council and KDI Hold International Conference on 'The Role of Fiscal Policy for Sustainable Growth'

[Asia Economy Sejong=Reporter Kwon Haeyoung] As economic growth rates decline and welfare expenditures are expected to increase rapidly due to demographic changes, leading global scholars have advised that proactive fiscal reforms such as austerity measures and the introduction of fiscal rules are necessary to ensure fiscal sustainability.

At the international conference held on the 6th at the Fairmont Hotel in Seoul, hosted by the National Economic Advisory Council and the Korea Development Institute (KDI) under the theme "The Role of Fiscal Policy for Sustainable Growth," these claims were raised.

Lawrence Kotlikoff, a professor at Boston University in the United States, explained, "When formulating fiscal policy, medium- to long-term generational burden factors should be considered rather than short-term aggregate fiscal indicators," adding, "In this case, the fiscal burden on future generations will be significant in countries including the United States, the United Kingdom, and Korea." He further argued, "To secure fiscal sustainability, it is an urgent task to operate fiscal policy considering these intergenerational accounting and medium- to long-term burden factors."

Vitor Gaspar, Director of Fiscal Affairs at the International Monetary Fund (IMF), emphasized responding to high inflation. He diagnosed, "The top policy priority should be stabilizing inflation caused by expansionary fiscal and monetary policies following COVID-19." He continued, "It is important to maintain a consistent direction in the combination of monetary and fiscal policies," and stated, "Considering market concerns about rising prices, the pace of national debt expansion, and weakening economic fundamentals, austerity fiscal policies through securing fiscal space and adherence to fiscal rules are required."

Jon Blondal, Director of Public Governance and Budgeting at the Organisation for Economic Co-operation and Development (OECD), highlighted the importance of comprehensive budget system reforms to respond to reduced fiscal space due to COVID-19, population aging, and additional spending pressures from climate change.

Kim Haksoo, Senior Research Fellow at KDI who attended the conference, proposed various fiscal innovation tasks including ▲ reforming the irrational local education finance grant calculation method ▲ additional control of discretionary spending ▲ expanding the revenue base ▲ and legislating fiscal rules.

Professor Kim Woochul of the University of Seoul explained, "It is necessary to improve fiscal management efficiency through restructuring the rigid fiscal structure between central and local governments and to introduce fiscal rules for systematic fiscal governance reform," adding, "In the medium to long term, fiscal structure openness and flexibility are needed so that the central and local governments can jointly decide the scale of local transfer funds according to changes in fiscal demand."

Lee Inho, Vice Chairman of the National Economic Advisory Council and the event host, assessed that the recent fiscal environment is very severe. He urged, "To secure fiscal sustainability, principles of fiscal policy must be established and proactive responses to fiscal risks through fiscal reforms are necessary."

Cho Dongchul, President of KDI, stated, "Economic growth rates are declining while welfare demands are increasing," and expressed hope that "in-depth discussions will be held on ways to enhance the growth potential of our economy and ensure fiscal sustainability."

Bang Kiseon, First Vice Minister of the Ministry of Economy and Finance, said in his congratulatory remarks, "Despite recent difficult fiscal conditions, the government is pursuing fiscal policies such as establishing a sound fiscal stance through legislating fiscal rules, supporting vulnerable groups, and establishing the Fiscal Vision 2050," and added, "I hope constructive discussions will take place so that fiscal policy can become the backbone and stepping stone of our economy."