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Who is going to pay for welfare?

Published: 02 Nov. 2012, 21:33

Presidential candidates may be good with words on welfare programs but bad at math. A forum on public finance sponsored by the National Strategy Institute pointed out that to accommodate the spending plans for the welfare programs rolled out by the ruling and opposition parties, the fiscal budget would run a deficit of around 15 trillion won ($13.7 billion) a year. Both the Saenuri Party and the Democratic United Party do not explain how they get the money.

The forum estimated the Saenuri Party’s program would require 75.3 trillion won during the five-year term while the DUP’s would require 164.7 trillion won. Moon Jae-in of the DUP additionally promised to double the senior pension and offer 100,000 won to 500,000 won in monthly allowances for job seekers of any age. This would require about an extra 20 trillion won a year.

The problem is that the spending plan is not supported by fund-raising. Even if they have plans, they are uncertain or unspecific. The forum estimates 8 trillion won to as much as 24.5 trillion won is lacking per year to finance the programs. Kang Bong-kyun, former finance minister who heads the forum, said the welfare programs touted by the political parties could flop unless they come up with specific funding plans for an average 15 trillion won a year. He urged presidential candidates to present plans on tax hikes that could ensure funding for increased welfare spending without causing large deficits. Both parties say they don’t need to raise taxes, but in reality, there is no other way to fund new welfare plans without an across-the-board tax hike.

Kang suggested that a 2 percent hike in the current 10 percent value-added tax could cover the shortage. He added that a leader bold enough to tell the people that there cannot be better welfare without higher taxes would be trustworthy to guide the country. He spelled out the reality that a tax hike is inevitable in order to increase spending for welfare without incurring budget deficits and that a raise in the surtax would be the most feasible option.

None of the presidential candidates so far dares to mouth the words “tax hike.” Raising the surtax would be politically risky. Kim Chong-in, who is heading the economic policy making team at the ruling party’s campaign team, had to retract the idea of raising the value-added tax on the following day. Independent candidate Ahn Cheol-soo said a blanket tax increase is inevitable for the universal welfare program but has yet to provide specific plans. If welfare programs are not backed with specific funding, voters will have to score the candidates with their ballots on election day.