For the second year in a row, the National Fiscal Strategy Meeting is being held amid the COVID-19 crisis. Joining us today are representatives from the National Economic Advisory Council, the Presidential Commission on Policy Planning, the Presidential Committee on Aging Society and Population Policy, the Presidential Committee on Job Creation and the Presidential Committee on the Fourth Industrial Revolution as well as Floor Leader Yun Ho-jung from the ruling Democratic Party of Korea.
At this juncture, the role of fiscal spending is immense. As economic recovery picks up speed, we have to address new socio-economic divides caused by COVID-19 and, at the same time, make investments to prepare for the future. I urge everyone to engage in today’s discussions with a determination more extraordinary than ever before.
During this year and last, we have been mobilizing all available fiscal capabilities, determined to draw up a budget as if in wartime. As a result, COVID-19-related economic damage has been kept to a minimum, and our economy is recovering faster than those of advanced countries. Our GDP has already recovered to its pre-COVID-19 level in the first quarter of this year. It is also forecast that the annual growth rate will exceed 4 percent for the first time in 11 years. All this is attributed to fiscal spending serving as a pump primer and households and businesses working together.
However, the recovery is still only half complete. One half has yet to emerge from the shadows. Economic recovery has come unequally, depending on the industrial sector, and the polarization of job opportunities is distinct. More than anything else, the job situation is difficult. Compared to February last year, over 300,000 jobs have yet to be restored. Young people and women continue to find it difficult to land jobs. Financial difficulties facing microbusiness owners and the self-employed have not been resolved either.
A job crisis equals a crisis in income distribution. The Government’s proactive policy response has led to the income quintile ratio improving for two consecutive quarters, but this is only due to the working effects of fiscal spending while market income inequality is worsening. One silver lining is that fiscal spending has been playing a role in mitigating market income inequality and improving income distribution.
In addition to the gaps between income quintiles, those between economic sectors are widening as well. There are some business lines and companies that are growing significantly thanks to the recovery in manufacturing and the second venture boom. In the meantime, face-to-face service and other industries dependent on domestic demand are seeing their difficulties pile up due to recovery delays.
At a time like this, the role of fiscal spending is all the more important. Fiscal spending should serve as an economic counterweight to offset a lack of vitality among households and businesses and to help rectify polarization between income groups and economic sectors. It is true that our sovereign debt has increased rapidly in the course of responding to the recent crisis. However, the extent of our increase is smaller than those of other countries, and we maintain relatively good fiscal health.
There are mixed opinions as some demand expansionary fiscal spending while others stress fiscal soundness. However, I believe we need to maintain an expansionary fiscal policy – at least until next year – to achieve a clear economic rebound and reduce the COVID-19-induced divides. Investments in employment and social safety nets should also be steadily increased, including job support for the vulnerable, universal employment insurance for everyone working and an end to the family support obligation criteria for living allowances.
Speed and timing are of paramount importance to maximize the effectiveness of fiscal policy. While disbursing this year’s budget quickly, we need to leave open the possibility of additional financial injections by using significantly increased tax revenues, if necessary, to swiftly respond to our epidemic prevention and control situation and changing economic conditions.
Fiscal spending must also serve as a solid stepping stone for our leap into a better future. Countries around the world are engaging in fierce competition to take the lead in the post-COVID-19 era.
Developed countries and regions such as the United States and European Union are also making large, government-led investments to accelerate their transition to a digital-green economy and reorganize global supply chains to serve their own needs first.
We cannot be left behind. Starting with the total of 160 trillion won in government spending to be injected into the Korean New Deal by 2025, investments in new industry and technology have to be further expanded. I ask you to comprehensively review not only fiscal expenditures but also our tax system and government procurement.
Although our fiscal spending to surmount the COVID-19 pandemic has been unprecedented and bold, Korea is still seen as having more fiscal space compared to other developed countries. Moreover, the rapid economic recovery that has been attributed to expansionary fiscal policy has significantly bolstered this year’s tax revenue, further helping to maintain fiscal soundness.
As such, we have to amplify the effect of this virtuous fiscal investment cycle, where fiscal spending stimulates the economy and, in turn, leads to an increase in fiscal space. It is also essential that we work to increase the support for strengthening inclusiveness and cultivating new industries by injecting government funds effectively where they are needed. At the same time, expenditures for low-priority projects must be boldly restructured.
We must prepare for the time when our economy gets back on a normal track. The exit strategies for the projects implemented and expanded temporarily in the face of a crisis have to be prepared in advance. Moreover, I urge you to make preparations now, so the fiscal rules established last year can be applied as planned beginning in 2025.
The year remaining in my Administration will determine the future of Korea after the COVID-19 pandemic. I hope today’s meeting will serve as an opportunity to unite the Government’s capabilities, so we can maintain fiscal soundness while accelerating both a complete end to the crisis and our leap toward becoming a pacesetting nation.