Updated October. 05, 2012 05:39
Financial experts call the establishment of fiscal rules that include principles and standards for budgetary expansion as the best policy of the incumbent Lee Myung-bak administration. Another deemed as a successful policy was the revised supplementary budget formulated in March 2009 to tackle the 2008 global financial crisis.
On the other hand, the four-river restoration project and policies aimed to advance public enterprises were given relatively low assessments for financially burdening the country. Experts in finance agreed that Koreas fiscal condition was in the positive range, but that the country should brace itself for an increase in welfare spending down the road.
The Korean Association of Public Finance said Thursday that it would announce Friday the result of a poll of financial experts that includes the above in a joint conference on finance titled The Assessment of Policies of the Lee Myung-bak Administration and Fiscal Reform for the Next Administration at the National Assembly in Seoul.
Kim Jin-young, an economics professor at Konkuk University in Seoul, conducted this poll of 42 professors and researchers belonging to the association. He said fiscal rules implemented from fiscal 2011 and the revised supplementary budget of March 2009, were given the highest scores among 10 major fiscal policies by the Lee administration. The two policies received 3.19 points.
The evaluation scale of one to five points was applied to this assessment. One point represented "very negative," two points "negative," three points "normal," four points "positive," and five points "very positive."
The key to fiscal rules seeking to achieve a balanced budget as implemented by the Strategy and Finance Ministry from fiscal 2011 is to maintain the increase rate in spending 1 or 2 percentage points lower than that of revenue.
Korea recently deferred the timing of the surplus of the central government`s management account ratio to GDP to 2014 to tackle the domestic economic slowdown due to the eurozone crisis. Despite this, the government was estimated to have managed the increase in spending in the lowest range.
The 2009 revised supplementary budget of 28.4 trillion won (25.51 billion U.S. dollars), which had been criticized as excessive, was rated to have contributed to the fastest recovery among major economies from the 2008 financial crisis.
The lowest score of 1.97 went to the four-river restoration project, which a combined 22.2 trillion won (20.4 billion dollars) was spent, including 8 trillion won (7.2 billion dollars) borne by Korea Water Resources Corp.
Professor Kim said, Despite the need to manage water, too much money was spent in a short period of time from a fiscal point of view.
The policies to advance state-run enterprises received a low score of 2.39 because regardless of good intentions, the result was a rise of 85.9 percent in public corporation debts from 249.3 trillion won (223.9 billion dollars) in 2007 to 463.5 trillion won (416 billion won) last year.
For Koreas fiscal soundness, 80.6 percent of experts responded positively. Twenty-five of the 31 experts answered positively about fiscal soundness, with one answering "very sound," 24 "sound," six "bad," and none "very bad."
Certain experts urged the country to increase the ratio of tax to GDP to manage increased welfare spending due to the low birth rate and aging population.
The association said, Many agreed on the need to increase taxes to a degree to meet fiscal demand while maintaining fiscal soundness...Korea needs to cut spending on social overhead capital and the farming and fishing industry while increasing overall welfare spending. The overall tax system needs to be redesigned."