After publishing the ｢2012~2060 Long-term Fiscal Outlook｣ and Analysis report in June 2012, the National Assembly Budget Office (NABO) published the ｢2014~2060 Long-term Fiscal Outlook｣ report in 2014 to re-examine Korea's fiscal sustainability.

Based on the 2011 Population Outlook report by Statistics Korea, this report takes into consideration the recent economic and fiscal conditions to forecast the macro-economic trends, gross income, gross expenditure, fiscal balance, and national debt up to year 2060 as a means to re-assess Korea's fiscal sustainability. Moreover, based on the results of the analysis, this report also presents the likely outcomes of the policy scenarios that are intended to secure long-term fiscal soundness.

The December 2010 Population Outlook by Statistics Korea predicts a major shift in Korea's demographics over the next 50 years.
With the intensifying trends of low fertility and aging, the economically active population (between the ages of 15 and 64) is expected to decrease from 2016, and Korean society is expected to become an aged society (percentage of senior population: 14%) from 2018 and a super-aged society (20.8%) from 2026. Given such demographic changes, the supply in the labor market (economically active population) will decrease after 2037, and Korea will face a low-growth era with a potential growth rate of below 1% in 2060 (currently at 3%).

According to the baseline outlook analysis, gross income is expected to drop significantly from 26.2% of the GDP in 2014 to 21.3% in 2060, while gross expenditure is expected to increase from 25.4% of the GDP in 2014 to 32.6% in 2060 due to increases in pension expenses (6.6% growth per annum) as a result of population aging and in interest expenses (6.6% growth per annum) due to increases in national debt. As gross expenditure grows at a faster pace than that of gross income, the operational fiscal balance is expected to continue deteriorating from a deficit of 1.8% of the GDP in 2014 to a deficit of 8.2% in 2060. As a consequence, national debt is expected to increase from 37.0% of the GDP in 2014 to 168.9% in 2060. Moreover, the fiscal baseline outlook assessed the long-term fiscal sustainability, which showed that Korea's finances would likely not be able to maintain sustainable growth from 2034 when the national debt is expected to become equivalent to 67.9% of the GDP.

Another aspect of the long-term fiscal outlook assessment is to understand the impacts of policy measures that are likely to be taken for securing sustainable finances. In the latter part of the report, a scenario analysis was performed for policies with different taxation ratios and discretionary spending. The scenarios were based on the past fiscal management practices of major OECD nations by changes in the demographics.

Under the adjusted discretionary spending scenario, the level of national debt improved to 148.4% of the GDP in 2060 against that of the baseline outlook (168.9%). Despite having its limitations in responding to economic changes, such as for adding economic stimulus, the adjustment of discretionary spending is deemed necessary for restructuring the tax expenditure to improve long-term fiscal soundness. Under the adjusted taxation ratio scenario, the level of national debt was calculated at 88.9% of the GDP in 2060, a significant decrease from the baseline's 168.9% the adjusted discretionary spending scenario's 148.4%. This implies that in order to ensure sustainable long-term fiscal growth in Korea, a policy with an adjusted taxation ratio is necessary.

This year's 「2014~2060 Long-term Fiscal Outlook」 report, the second report published by NABO since 2012, is a re-warning of the fiscal risks we are about to face in the future, and it reiterates the need for a preemptive response to the challenges of the demographic changes, such as low birthrate and the aging population, before it is too late. In the pivotal processes of legislation and decision-making on fiscal management by the National Assembly that determines the fate of the nation, it is essential to make responsible decisions that can guarantee the long-term fiscal sustainability and the right balance of responsibility among generations.