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The unknown cost of welfare

Published: 21 Feb. 2012, 21:17

The ruling and opposition parties have vowed to up monthly pay for soldiers to between 400,000 and 500,000 won ($355-$444) from the current 90,000 won level. The hike would cost 1.6 trillion won a year. They promise to cut college tuition fees for students from low-income families by half - another 2 trillion won in spending. They promise to amend regulations for poor senior citizens so that they can receive a basic livelihood subsidy even if they live with their children, which would cost more than 4 trillion won.

There is no end to the contest of welfare pledges this election year. We have seen free child care for toddlers up to age five, free breakfast at elementary, middle and high schools, compulsory job placements for youth, and raises for irregular workers.

The Ministry of Strategy and Finance sat down and did the math on behalf of politicians. It estimated that as much as 43 trillion won to 67 trillion won would be needed every year, with an average of around 55 trillion won. The amount is over half of this year’s planned welfare spending of 92.6 trillion won. Regardless of who wins the upcoming elections, if the new government aims to honor its campaign pledge, it would have to earmark about half of the total annual budget for welfare expenditures.

The parties have gone too far in welfare populism. Their promises are not financially possible. To raise such enormous funds, the government would have to sharply raise taxes or take on significant sovereign debt. No parties have explained how they aim to fund their plans. The Democratic United Party said it would raise tax rates from a current 19.3 percent to 21 percent. The ruling Saenuri Party remains mum as tax hikes often don’t sit well with voters.

And government debt is a bad alternative. Future generations will already be saddled with a fiscal burden more than double that given to today’s taxpayers. Pension and public health insurance costs are rising as our society ages, and a low birth rate means there will be fewer citizens to help pay for these services. If more welfare is added to the current pot, it would be too much for the future generation to bear. We should not be so cruel as to dump our debt on our children.

When political parties make welfare promises, they should be required to release the estimated costs of their promises. They should do the same with large pork barrel projects like a new airport in the southern region. This way, voters will able to base their choices on merit, not sweet talk.