Taxes are a place to start

A heated debate flared recently over expanding welfare benefits without a tax hike. Although President Park Geun-hye pledged during the presidential campaign that she will provide more welfare benefits without raising taxes, the chairman of the ruling Saenuri Party said it is impossible to provide more benefits without a tax hike and that it’s wrong for a politician to deceive the people with such a promise, fueling the controversy. Some even worried that Korea may face a bankruptcy like Greece or Argentine if welfare benefits are expanded.

As of 2011, the country’s spending on public social welfare was 9.1 percent of gross national product. That is not even half of the average in the Organization for Economic Cooperation and Development (OECD), at 21.7 percent. Of course, the people are paying more for more benefits. As of 2011, the total tax rate, including the public burden for social security, was 25.87 percent, far lower than the OECD average of 35.24 percent.

Except for the United States and Japan, countries that have per capita national incomes over $40,000 are providing many welfare programs at higher costs. Of course, providing more benefits without considering the financial capability can put a country at fiscal risk. Greece was a classic example.

The key is finding the appropriate level of welfare benefits. Until the 1980s, Korea concentrated all national capabilities on the industrial economy, while there was almost no welfare. In 1997, the country faced a foreign exchange crisis and a welfare system to rescue the jobless and the poor was established.

Over the next decade, larger budgets were spent on welfare, but income inequalities grew. Globalization of labor and capital provided an opportunity to people with capital to earn more, but the low-income workers were driven into worsening conditions and the wealth gap began to widen severely.

The tragedy of a mother and two daughters in Songpa District is not a new problem in our society. A young woman killed herself after taking care of her disabled elder sister. Children are abandoning parents with dementia because they cannot bear the burden.

In addition to those extreme cases, 1.5 million households have failed to pay their health insurance on time due to economic problems and they cannot get medical care freely. Korea has perhaps the highest poverty rate for the elderly.

The level of our welfare programs must be improved. If we don’t, unequal opportunities will limit education for some and hinder the distribution of human resources, limit the means to move up the social ladder and trigger conflict in our society.

Korea’s economy is largely dependent upon outside factors, and a fair distribution structure not only guarantees effective distribution of resources in the long term and increased employment by expanding domestic consumption, but also works as a basis to maintain stable economic growth and fiscal stability.

Coming up with resources to provide more welfare benefits and improving the system’s effectiveness are the next task. While employers paying for 55 percent of social insurance contributions, the figure is 63 percent in other OECD countries. Among OECD countries, Korea has the lowest progressivity in income tax except for Japan and Poland, and the vertical fairness of income tax has also worsened since the mid-2000s.

In Korea, the laborers are earning less and less, but they are actually paying more for benefits. Tax reforms can raise resources for welfare programs.

Expanding welfare benefits through tax reforms is a clear truth. Since slow growth is expected due to our low birth rate and aging society, it is also necessary to restructure the welfare system to maintain its sustainability. The British social researcher Richard Titmuss’s argument on universalism versus selection can be helpful to set the direction for Korea’s welfare policy.

Translation by the Korea JoongAng Daily staff.

The author is vice president of the Korea Institute for Health and Social Affairs.

by Shin Young-seok