trillion won annually. Park’s presidential campaign team already has constructed a plan to raise 134.5 trillion won, slightly more than the promised 131.4 trillion won. The team has vowed to secure 71 trillion won from budget reduction and adjustment of expenditures, 48 trillion won from reform of tax system and administration, and 10.6 trillion won from reform of welfare administration.
But the outlook for financing the promised projects looks somewhat ambiguous, except for a 7percent across-the-board cut in discretionary spending and strengthening income tax collection. Fewer tax exemptions and a crackdown on tax evasion always are mentioned whenever a discussion on government efficiency arises. However, since the beneficiaries of tax exemptions are mostly small and medium-sized enterprises and financially vulnerable self-employed people, benefits for them should instead be increased. The distribution system for welfare services should also be overhauled though it will not necessarily lower expenses.
Even if financial resources needed over the next five years are secured, questions will remain over their sustainability. In 2010, 11 percent of Korea’s population was elderly and welfare expenditures accounted for 9 percent of the nation’s gross domestic product (GDP). Around 2020, when the percentage of the elderly population is forecast to be 15.6 percent with per capita GDP put at $33,000, the percentage of welfare spending to GDP is forecast to jump to 12 percent, if the current welfare system remains unchanged. In less than 10 years the nation will struggle to cope with a natural increase of 3 percentage points in the proportion of welfare spending to GDP. Against such a backdrop, getting an additional 2 percentage point hike during Park’s five-year term will not be easy.
Of course, the ratio of welfare expenditure to GDP among member countries in the Organization for Economic Cooperation and Development is estimated to average around 20 percent. Korea will also be able to cope with a steep increase in its welfare spending. An increase in individual taxes and the social security fee can be a short-term option. Over the mid to long term, however, the government has limited choices in upgrading the welfare level without increasing tax and social security burden. Under Lee Myung-bak, the government has expanded its welfare expenditures without increasing people’s financial burden. But it should not be overlooked that the government’s debt has increased instead.
Above all, the most immediate task for President-elect Park is to resolve issues surrounding the government’s 2013 budget bill. The ruling and opposition parties delayed the passage of the budget bill until after the presidential election. They now have just 10 days left to act. The government allocated 342.5 trillion won for next year’s expenditure in its 2013 budget proposal, with 97.1 trillion