This report outlines the mid- to long-term fiscal recommendations and management directions based on the analysis of the fiscal amounts, conditions, allocations by sector and government debt depicted on 2016-2020 National Fiscal Management Plan.
  Fiscal management strategies outlined on 2016-2020 National Fiscal Management Plan and 2017 budget bill appear to be less expansionary than earlier budgets. Early execution of the budget in the first half of 2017 may result in the weakened effectiveness of fiscal measures later in the year, raising the need to balanced implementation. Korea’s government debt was at 44.8% of GDP in 2015 (OECD standard), lower than the OECD average of 115.5%. However, given the income level, aging population and the pace of indebtedness growth, robust debt management is required.
  The economic growth enhancement effect of 2017 budget bill is estimated 0.13%p from the prior annum growth rate. This is lower than the estimation on 2016 budget bill (0.18%p). 0.19%p is estimated as the employment enhancement effect of the 2017 budget. Achieving previous level of fiscal expenditure’s impact on the economic growth may not be probable as the recent economic slowdown can be attributed as structural. In spite of this, fiscal operations that promote stable economic growth through the prevention of decline in potential growth prospects with fiscal spending are required.
  Korea’s fiscal expenditure is expanding at a rapid pace to respond to the economic recessions at home and abroad and expanding demands for welfare. Fiscal expenditures are projected to increase in the long-term under the low economic growth trend. Thus, based on the areal and sectorial macro assessments considering policy priorities and objectives, it is advisable to reduce non-essential and non-urgent expenditures and to renew fiscal expenditure efficiency by allocating resources strategically. Establishment of comprehensive measures to reform the tax system reflecting the socio-economic structural change and of a national consensus around the reform is needed to procure reliable fiscal sources for welfare or other areas where demand is growing.
  The administration issued a pre-announcement of legislation of the Act to Promote Fiscal Soundness that encloses the introduction of fiscal rules. However fiscal rules that are suitable to Korea’s fiscal conditions should be delivered. This report also offers suggestions for legislative efforts to enhance fiscal soundness, fiscal management to boost equality across generations, and disclosure of fiscal data to promote transparency.