KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purposes

▶ Socio-economical Changes

○ Korea is now experiencing both rapid demographic changes such as low birth and aging, and gradual decline of the economic growth rates, whereas welfare expenditure is constantly increasing. If this is viewed from a financial perspective, it is feared that fiscal revenue will gradually decrease and fiscal spending will increase

▶ Purposes

○ This study aimed to find a desirable form of the fiscal rules as a means to achieve fiscal soundness by examining the cases like Sweden and UK which each has a high share of well-being among Western European countries that have undergone upper-mentioned socio-economic changes before us

○ By looking at such precedents as Swedish and UK Fiscal Rules case, we intend to gain some useful insight into our future fiscal management methods, and, if possible, especially for growing welfare spending 

 

Ⅱ. Major Content 

▶ The Swedish Fiscal Rules Case

○ Sweden introduced its fiscal rules in the process of overcoming the economic crisis caused by the collapse of the bubble economy in the early 1990s

○ The Swedish fiscal rules were gradually developed in the following order : ① Mid 1990s - surplus target + expenditure ceiling ② 2007 – independent fiscal policy council ③ 2019 – debt anchor

○ Sweden is an example of catching both economic growth and well-being by choosing a welfare system that matches its economic power. However, the rise in welfare spending can be controlled not by fiscal rules only but by wide national consensus together

○ The Swedish fiscal rules were highly successful for several reasons but most importantly wide consensus and close communication between government and riksdag and people could be pointed out

○ In such democratic context, the role of the fiscal policy council to facilitate communication through providing accurate analysis and related information cannot be overlooked 

▶ The UK Fiscal Rules Case

○ After 2008 financial crisis, the UK introduced a system of fiscal rules similar to those of Sweden (net borrowing target, debt target and welfare cap + independent OBR(Office for Budget Responsibility)).

○ On the indicator, it is too early to evaluate it as a success, but it is beginning to show some good performance in OBR’s activities

○ However, it is difficult to see that the UK fiscal rules framework generally guarantee close and full communication between the government and the Parliament and people, in every respect, on the issues of the responsibility of compliance with fiscal rules  

▶ Implications for Korea

○ Fiscal rules cannot be simply enforced through judicial control or sanctions regulations. Instead, it is important to prepare an institutional mechanism for democratic communication and coordination between the responsible bodies

 

Ⅲ. Expected Effects

○ It can contribute to the preparation of measures to improve legislation for the successful introduction of fiscal rules through Sweden and UK model cases

○ It can contribute to the preparation of conditions for the successful establishment of the system by emphasizing the importance of democratic communication operating behind the legal system