Cut welfare plans or increase taxes

The ambitious campaign promise on social welfare enhancement may cost a key member of the Park Geun-hye cabinet. Chin Young, minister of health and welfare, offered to resign because he felt responsible for the government’s inability to afford the costly welfare plans he helped concoct during the president’s election campaign. The ministry plans to announce later this week a basic pension scheme for elderly citizens - a scaled-down version from the president’s campaign promise of a 200,000 won ($186) monthly allowance for anyone 65 or older. The revised scheme will exclude wealthy beneficiaries and instead be limited to people in the lower 70 to 80 percent income brackets, based on incomes and payments from the national pension.

Chin was the mastermind behind the president’s welfare ideas, including the universal basic pension plan, while serving as vice head of the public happiness and transition committees. He had hoped to help the president honor her campaign promises, but could not overcome the financial hurdles. Some, however, suspect an ulterior motive. They believe Chin wants to run as the ruling party candidate to challenge liberal Seoul Mayor Park Won-soon in gubernatorial elections next June. Regardless, Chin’s resignation underscores the end of the administrations unrealistic and unfeasible welfare plans.

We have demanded that the government reexamine its ambitious - and excessive - welfare promises. It is too risky to cling to them with no way to pay for them. President Park recently acknowledged for the first time that the government may have to consider a tax increase to fund universal welfare programs. During talks with heads of ruling and opposition parties, she said tax increases based on public consensus may be inevitable if funds are still short after restructuring government expenditures and scrapping tax deductions.

Combined welfare spending is on track to exceed 100 trillion won for the first time next year. Tax revenues, however, are short. The government collected 10 trillion won less than its target in the first half of the year. Welfare spending will inevitably increase in relation to the speed of our aging society. Tax revenue will be forever short in meeting growing welfare demands. The government will have to make a choice - back down on some welfare plans or collect more tax.

South Korea has been stuck in the middle-income trap for more than a decade. It faces murky prospects due to external instabilities aggravated by the inevitable phasing out of U.S. monetary easing. The government must face the music and answer the practical question: Will it scale back welfare plans for now or increase taxes?