Economic Policy Focuses on Active Fiscal Role Ahead of Confirmation Hearing

Lee Hyung-il, the nominee for Economic Deputy Prime Minister and Minister of Finance, emphasized the need for an active fiscal role to secure growth ahead of his confirmation hearing on the 15th. However, he also expressed caution regarding the increase in national debt and mandatory spending. The balance between fiscal input for growth and fiscal soundness is expected to be a key point of discussion during the hearing.

According to the materials submitted to the National Assembly by the Ministry of Finance on the 13th, Lee stated, "An active fiscal role is necessary to respond to external uncertainties and structural issues in our economy."

However, he drew the line at unconditional fiscal expansion. Lee acknowledged the need for institutional measures to enhance fiscal sustainability, stating, "Excessive increases in national debt and mandatory spending can constrain fiscal capacity and negatively impact potential growth rates and future generations' burdens."

He believes that fiscal efforts should focus on areas that can lead to growth. His plan is to create a virtuous cycle of growth and fiscal health by expanding supply capacity. If appointed as Deputy Prime Minister, he stated, "I will prioritize the rebound of potential growth rates and the reduction of polarization by strengthening inter-ministerial collaboration to enhance the speed and momentum of policies."

The government's Future Response Fund, which will amount to 162.3 trillion won starting next year, is expected to serve as a litmus test for Lee's fiscal management philosophy. The fund is structured to allocate resources to areas such as youth, growth drivers, local development, education, and talent. The budget for next year alone is set at 45.4 trillion won, with 14.2 trillion won earmarked for the growth driver account to support future industries like artificial intelligence (AI).

The actual investment capacity of the Korean version of a strategic sovereign wealth fund for strategic industries will also be a topic of discussion during the hearing. The government plans to launch the fund with an initial capital of over 20 trillion won, although a significant portion will consist of public institution shares and in-kind contributions.

The Ministry of Finance stated, "We expect that cash assets available for investment in 2027 will be around 1 trillion won, including cash contributions and dividends from public institutions."

In terms of taxation, Lee indicated a cautious approach, adjusting the pace based on market conditions. Regarding the introduction of a financial investment income tax and capital gains tax, he said, "This will be reviewed after market conditions stabilize sufficiently." This suggests a willingness to reform the tax system in line with changes in the financial market and industry while considering potential market shocks.

Conversely, the taxation of virtual assets, scheduled for January next year, will proceed as planned, with specific tax standards to be established within the year. Lee explained, "The specific tax standards will be announced by the National Tax Service within the year, ensuring that taxpayers do not face difficulties in reporting."

On real estate policy, Lee emphasized the principle of focusing on actual residence. He previously stated, "Establishing a housing market centered on actual residence is a firm principle." However, it has come to light that he has owned an apartment in Gwacheon since 2009, residing there for only a total of four months over 17 years, which is expected to be a point of inquiry during the hearing. He explained that the apartment is currently being demolished for reconstruction.