Welfare pledges to cost $237B in next five years

Campaign pledges to boost welfare programs come with a 268 trillion won ($237 billion) price tag over the next five years, Korea’s Finance Ministry said yesterday, adding that tax increases and more government bonds would be unavoidable to pay for them.

The Ministry of Strategy and Finance announced yesterday the findings of its welfare policy task force, which concluded that the execution of all welfare-related campaign promises of each major political party would cost “at least” 268 trillion won during the next five years.

Vice Finance Minister Kim Dong-yeon explained that the ministry is “only releasing the lowest number” because “flexibility of demand remains a variable, and the highest number could suggest a particular political party’s policies.”

Kim declined to say more in deference to election laws that require public servants’ neutrality during the current campaign period before next Wednesday’s general elections.

But despite being the most conservative estimate, the Finance Ministry’s 268 trillion won forecast far exceeds the budget plans of major parties.

The ruling Saenuri Party plans to sink 89 trillion won of government funding over five years into welfare programs - an initial 75.3 trillion won plus an additional 13.7 trillion won for regional governments.

The main opposition Democratic United Party plans to spend 165 trillion won of state budget over five years while also cutting “unnecessary” government spending by 12.3 trillion won and eliminating other “unneeded” welfare programs by 6.4 trillion won.

Although the Finance Ministry did not reveal exactly how it arrived at its estimate - which is three times higher than the Saenuri’s estimate and 62 percent higher than the DUP’s - private-sector analysts have been saying for weeks that both parties’ plans for increased welfare were unrealistic without significant tax increases.

“[The DUP’s] plan to funnel an additional 32 trillion won per year on average toward welfare funding is impossible without adding new tax categories,” said Kang Jang-seok, professor of politics at Kookmin University. “It would be more honest to outline a plan to increase taxation rates.”

As for Saenuri, “In order to reach the plan of funding 89 trillion won over five years, government spending would need to be cut by 10.7 trillion won, while tax revenues would have to increase by 7.1 trillion won,” said Lee Young-hwan, professor of tax policy at Keimyung University.

“But that is not mentioned anywhere.”

“[Parties] plan to fund [the welfare programs] in three ways: increasing tax revenue through reform of the tax system, increasing revenue through reform of social insurance, including the national health insurance system, and restructuring government spending,” said Kim of the Finance Ministry.

“A large portion comes from restructuring government spending, but many regional districts have actually been pumping out pledges for regional development [during the election]. We believe there will be difficulties in funding [the programs].”

Political parties’ unwillingness to underpin welfare pledges with solid budgetary arithmetic reflects Koreans’ desire for more welfare programs and a sharp unwillingness to pay for it from their own pockets.

A phone survey of 1,008 people conducted by Hyundai Research Institute in early March found that respondents who said Korea’s current welfare programs were “inadequate” outnumbered those that found them “adequate” by four to one.

But only 4.9 percent of all respondents answered that new welfare programs should be paid for through higher tax rates.

By Lee Jung-yoon [joyce@joongang.co.kr]