Time to be frankThe new administration of President Moon Jae-in will be charging the people for the cost of his campaign promises. Some may be appalled at the cost of 190 economic pledges. Some may be outraged for being charged for something they did not order. Others may demand the bill be passed onto richer folk.
Instead of looking the other way, we all should do our part to come up with a practical solution. Since welfare inevitably must be enhanced, we must pay our share after objective assessment. Let’s do the math. To create 810,000 public-sector jobs as Moon pledged, some 4.2 trillion won ($3.7 billion) will be needed. Another 5.6 trillion won would go to the education sector, 2.5 trillion won to helping small merchants, and 4.6 trillion won for defense and other matters. To tackle demographic weaknesses, housing, and other types of welfare, as much as 18.7 trillion won is needed.
The final bill will come to 35.6 trillion won on average per year, or 178 trillion won in total over the five-year presidential term. This spending will create jobs for young people and pay various social benefits. The additional 178 trillion won on top of the general annual cost of sustaining the county would inevitably increase the tax burden on taxpayers. It cannot be entirely charged to rich companies or individuals.
To finance these pledges, the Moon administration plans to reform the public finance system to save 112 trillion won and also overhaul the tax system to collect an additional 66 trillion won.
That is easier said than done. Reforming public finances is a mere adjustment of expenses. The ruling and opposition parties wrangled over a day care budget that was created after the 2012 presidential election throughout the last four years because they could not come up with 4 trillion won. In Japan, the Democratic Party replaced the ruling Liberal Democratic Party in 2009 by promising public finance reform, but did not hold onto ruling power because it made little progress.
At the end of the day, the extra spending could be dumped on large companies and the rich. Moon’s Democratic Party believes it could raise another 18.2 trillion won from corporate tax revenue if it ups the tax rate on companies earning 50 billion won or more to 25 percent from the current 22 percent. Large companies that have been doing better from a recovery in global demand could afford the extra tax cost. But there are smaller companies that can’t. If their tax burden is increased, companies will not be able to afford new hires or investment.
In this way, annual increases to tax revenues could be disrupted. Moon vowed to increase the rise in the annual budget from 3.5 percent this year to 7 percent from next year. He claimed that the extra tax revenue and a budgetary leftover of 10 trillion won would make the sharp rise in budgetary spending affordable. But there is no guarantee that tax revenues will increase that much.
Even without extra spending, welfare costs will only go up. That’s a simple fact in a rapidly aging society like Korea’s. A third of this year’s budget, or 130 trillion won, went to social welfare and hiring. The welfare costs will double within the next decade when the baby-boom generations turns 65 years old or older. The additional 178 trillion won cost of Moon’s economic promises is bound to saddle Korea with deficits and rising national debt.
The economic pledges of Moon’s rivals were, if anything, even more profligate. Hong Joon-pyo of the Liberal Korea Party did not disclose budget estimates for his pledges. The cost of Ahn Cheol-soo’s of the People’s Party was estimated at 200 trillion won, Yoo Seong-min’s 208 trillion won and Sim Sang-seong’s 550 trillion won. Under any of them, Korea would have ended up joining Argentina, Greece and Venezuela on the list of bankrupt states.
Moon must be practical and also be frank. He must acknowledge what cannot be done regardless of the promises made during the campaign. He must persuade the public that exemptions on income taxes need to be rationalized and value-added tax rates increased because there is still no such thing as a free lunch. If the people want more welfare, they must pay their share. Otherwise we cannot have welfare programs that can last.
JoongAng Ilbo, May 15, Page 34
*The author is an editorial writer of the JoongAng Ilbo.