Cost analysis is set for welfare pledge

The Finance Ministry has established a task force to examine the feasibility of a series of welfare proposals by both the ruling and opposition parties as they prepare for legislative and presidential elections this year. The ministry is skeptical about the pork-barrel suggestions, fearing that their populist appeal will blind voters to the fiscal wreckage that it fears would follow.

This is the ministry’s first venture into vetting such proposals, but is roughly comparable to the role played by the U.S. Congressional Budget Office in analyzing proposed legislation in that country.

Both the Saenuri Party and the Democratic United Party are rolling out welfare policies and campaign promises that include raising pay for soldiers and free education at high schools. The pledges by the two parties often overlap, and the one-upsmanship has led to serious questions about where the money to pay for them would come from.

“From the perspective of fiscal authorities, recent political pledges are simply unsustainable,” the Ministry of Strategy and Finance said in a statement yesterday. “If all those pledges were put into practice, the country’s fiscal sustainably would probably be seriously worsened.”

The government’s welfare spending has been growing rapidly, and even without those pledges, welfare expenditure and national debt are expected to grow continuously as society ages and pension payouts increase.

Total government expenditures grew 5.5 percent in 2011, and are expected to rise 5.3 percent this year. But welfare spending is increasing faster, by 6.3 percent last year and 7.2 percent this year. The proportion of welfare spending in total expenditures has risen from 26.6 percent in 2009 to 28.5 percent this year.

“It is impossible to not raise taxes or issue additional state debt to carry out expensive welfare programs. That would result in raising the tax burden or transferring our responsibilities to younger generations,” the ministry added.

Among the pledges, the ruling Saeuri Party announced a plan to gradually increase the monthly paycheck of military draftees to 400,000 won ($355), forgive debts of those who are classified as credit delinquents because of student loans and provide free lunches for elementary, middle and high school students. The DUP said, among other things, that it would support all daycare-related expenses for children under the age of six.

The Finance Ministry has set aside 92.6 trillion won for welfare programs in its 2012 budget, up from the previous year’s 86.4 trillion won. Those funds account for 28.5 percent of the government’s total annual expenditure plan for the year.

The government estimated that it would cost up to 340 trillion won over the next five years to carry out all the welfare-related proposals unveiled by the political parties.

By Limb Jae-un [jbiz91@joongang.co.kr]