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The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of Korea published on 20 June 2007.
Given the increase in the government budget deficit…
While the government’s financial position is relatively sound, government expenditures have risen at a 9% annual rate since 2002, outstripping the 7% annual increase in revenue. Consequently, the budget deficit has widened from 0.2% of GDP in 2002 to 1.3% in 2006, excluding the social security surplus, privatisation and the cost of financial-sector restructuring, and the initial budget for 2007 projects a 1.5% deficit. The latest National Fiscal Management Plan calls for a gradual decline in the deficit to 0.8% of GDP in 2010.
The government’s financial position is relatively sound
Government gross debt and guaranteed liabilities as a per cent of GDP(1)
1. Intra government debt is netted out beginning in 1997.
Source: Ministry of Finance and Economy.
… it is important to focus on balancing the budget to prepare for future spending pressures…
Given the slowdown in economic growth and the impact of monetary policy tightening, the government plans to frontload public expenditures in the first half of 2007 to help smooth the growth path during the year. Concentrating government spending in the first half of the year creates pressure for a supplementary budget to avoid a decline in outlays in the second half of the year, although the 2007 National Fiscal Act should help limit such pressures. The priority in 2007 should be to limit the growth of public outlays to the 7.5% rate in the initial budget and achieve the 6.4% annual rate through 2010 that is targeted in the National Fiscal Management Plan. As for revenues, the government’s Vision 2030 plan, announced in August 2006, calls for boosting revenue through tax reform. The priority for reform should be to broaden the tax bases for the personal and corporate income taxes by reducing generous allowances and exemptions and ensuring strong and uniform tax enforcement, especially toward the self-employed. Reforming the tax system is essential to limit the cost of distortions as the tax burden rises over time. Spending restraint combined with tax reform would help achieve a balanced budget in the medium term, thus helping prepare for future spending pressures, including the cost of greater economic co-operation with North Korea and public social spending.
North South trade and economic co-operation are increasing
1. Includes both public and private assistance, primarily for food.
2. Number of approved private economic cooperation projects.
Source: Ministry of Unification.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. The Policy Brief (pdf format) in Korean is also available. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Korea 2007 is available from:
For further information please contact the Korea Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Randall Jones, Taesik Yoon and Tadashi Yokoyama under the supervision of Willi Leibfritz and Stefano Scarpetta.