We are convening a National Fiscal Strategy Meeting in Sejong City for the first time ever. It is meaningful to discuss a broad direction for national fiscal operations in the Republic of Korea’s administrative center.
Also joining us here today from the National Assembly are Chairperson of the Democratic Party of Korea (DPK) Lee Hae-chan, DPK Floor Leader Lee In-young, DPK Policy Committee Chairman Cho Jeong-sik and Chairman of the National Assembly’s Strategy and Finance Committee Jung Sung-ho as well as other distinguished guests. Thank you for being here.
With regard to the issue of the strikes planned by bus drivers, I am grateful to you for helping to narrow differences enough to reach a deal by not only facilitating dialogue between labor and management but also by bringing the ruling party and the Government as well as local governments together for relevant discussions.
This is the third National Fiscal Strategy Meeting of my Administration. We are now standing near the halfway point when we need to look back on what we have achieved over the past two years and prepare for the three remaining years. If we’ve managed to start the engine of an innovative, inclusive nation, now is the time to step on the accelerator. I hope that 2020 becomes year zero when the innovative, inclusive nation goes beyond mere rhetoric and becomes readily felt by the people.
Just as with household budgets, depending on the economic situation, the Government needs to increase its spending proactively sometimes and to fill its coffers to shore up financial soundness at other times.
In the wake of past global financial crises, we’ve been focusing on padding government coffers. However, the current situation very urgently necessitates solutions to our society’s structural problems: low growth, wealth polarization, lack of jobs, the low birth rate and aging population. Now is when bold fiscal spending is required more than at any time before. If we fail to respond with active fiscal spending, we will end up paying even higher costs in the not-too-distant future.
The Government should play its role in a bold manner to encourage the private sector to take on the challenge of innovation. I urge you to pool your wisdom today so that policies and fiscal spending can be directed intensively toward these efforts.
Over the past two years, the Government has significantly increased social investments that were relatively neglected in comparison to those of other OECD member states. The social safety net for the most vulnerable in the community has been strengthened through the adoption of a child benefit, the Government systematically taking responsibility for dementia patients, basic pension hikes and the expansion of national health insurance coverage. Tailored job supports for young people, women and the “new middle aged” have been enhanced. Self-employed business owners have been placed within a separate policy category and are receiving support. These are the first steps taken to transform us into an inclusive nation.
The Government has also not held back on investments in innovation for our economic vitality and future growth engines. To facilitate innovative growth, the Government has formulated and implemented a strategy to promote the second venture boom, the hydrogen economy roadmap and the vision for innovative finance. It is also giving impetus to generating future growth engines in such areas as system semiconductors, biohealth and future-oriented automobiles. The Government is also boldly getting rid of obstacles to innovation by introducing the regulatory sandbox system for the first time.
These endeavors have brought about positive changes. Investments in new ventures reached a record high, and the number of newly founded businesses exceeded 100,000. An innovative atmosphere conducive to taking on new challenges is spreading now.
Record lows were posted in both the percentage of workers identified as low wage earners and the income quintile ratio – the average income of the richest 20 percent of the population over that of the poorest 20 percent. At the same time, the number of regular, full-time employees and those covered by employment insurance increased by large margins. Employees have undoubtedly seen improvements in income and quality of life. With unemployment benefits expanding, the employment safety net has also strengthened. The nation's per capita income and exports exceeded US$30,000 and US$600 billion, respectively, attesting to the increased scale of the nation's economy.
In the process of achieving these things, fiscal spending has played a significant role. It has been priming the pump, and the private sector has been spreading the impact of the stimulus. Still, however, much more remains to be done before the people can feel improvements in the quality of their lives on the whole. This is why fiscal policy must play a more active role going forward.
Among other things, the difficulties facing the self-employed and low-income families outside the job market are particularly heartbreaking. Thus, a more active fiscal role is required to strengthen the employment safety net by expanding employment and introducing a Korean-style unemployment allowance as well as to work out measures for the self-employed.
With fiscal stimulus playing an enhanced role, some might voice concern about the possibility of a short-term deterioration of our fiscal balance. Since our country's national finances remain very sound, however, the matter needs to be viewed from a more long-term point of view.
Budget allocations for an innovative, inclusive country are never a waste of expenditures. Rather, this has to be viewed as an early investment in the structural improvements of our economy and society.
The rationale is that if we lay the foundation for an inclusive nation and raise economic vitality through innovative growth, it will be possible to offset short-term fiscal spending by enhancing mid- and long-term growth potential and increasing tax revenues.
In comparison to other OECD members, it would make sense for us to have confidence that the Republic of Korea's economic strength has grown enough to expand fiscal spending in order to enable more people to enjoy a higher quality of life.
Fiscal spending has to play a role not only in improving the structure of our society in the mid and long term but also in responding to short-term economic fluctuations.
With global economic conditions worsening more than initially expected, economic growth was weak in the first quarter. As the saying goes “the economy is a state of mind,” so fiscal policy should play an active role in improving economic vitality to ensure that the mindsets of private economic stakeholders do not deteriorate. International organizations such as the IMF have also recommended that Korea adopt more active fiscal measures, including a supplementary budget.
In that sense, I earnestly call on the National Assembly to return to normal operation at the earliest date possible and quickly discuss the supplementary budget proposal. Timing and speed are everything in implementing a supplementary budget. The longer passage of the supplement budget bill is delayed, the less effective it will be, derailing preemptive economic responses.
I ask the ruling party and the Administration to pool their strength further to persuade the National Assembly. Fiscal policy also has to preemptively respond to future societal changes.
The low birth and aging population trends are quickly accelerating. The working age population already started declining from 2018. By 2025, Korea will become a super-aged society in which those 65 or older account for 20 percent of the entire population.
The declining birthrate and aging population will continue to reduce economic vitality and are bound to place a huge burden on government finances eventually. In addition to coming up with groundbreaking countermeasures for the low birth rate, the Government will have to devise mid- to long-term measures to innovate its finances in response to changes in demographics.
For an expansionary fiscal policy to win public support, it must be paired with intensive fiscal innovation. Money has to be spent where it is needed, but unnecessary waste must be drastically reduced.
Notably, generating tax revenue is expected to be difficult next year due to declining economic vitality and the decentralization of fiscal authority. Bold restructuring in spending is a must under these conditions to maintain mid- to long-term fiscal soundness while fiscal policy plays an active role.
I urge all ministries and agencies to go back to square one and meticulously examine projects that are reflexively drawn up or that have been unreasonably continued on account of the beneficiaries’ interests, and I also ask that you eliminate the causes of waste.
I ask for active cooperation from the heads of ministries and agencies. I hope that, at least for today, you will take part in the discussion from the position of cabinet members rather than the heads of your respective ministries and agencies.
I am looking forward to this meeting becoming a venue where you participate in a discussion and reach an agreement from the perspective of the nation and people, transcending the interests of ministries and agencies. I ask the ruling party to actively share your opinions on behalf of the people and continue to provide necessary support in the National Assembly as well.