Fears that the government’s sweeping tax cuts would significantly slash state expenditures on social welfare seem to have become a reality. The administration of President Lee Myung-bak, which is aiming to cut more than 20 trillion won (US$16.8 billion) in taxes by 2010, plans to limit social welfare spending in favor of spending on programs that will increase economic growth during Lee’s five-year term. Coupled with the recent tax cuts, which mainly benefit the upper class and wealthy property owners, the proposed cuts in the welfare budget are likely to widen the gap between rich and poor.
The administration’s budget proposal will shrink welfare spending in the coming year. The administration claims that spending on social welfare and public health will increase nine percent, or 6.05 trillion won, to 73.7 trillion won in 2009, outpacing the six percent increase in spending in the budget as a whole. However, some 5.28 trillion of the 6.05 trillion won increase is largely seen as being part of a natural increase in spending on existing systems. This includes spending on the national pension fund (2.41 trillion won), national health insurance benefits (656.6 billion won) and pension payments (874.9 billion won). Excluding these, only 777.9 billion won will be allocated to health and welfare by the Lee administration next year.
If the four state-run pension funds, such as the pension fund for ordinary people and public servants, are subtracted from the administration’s 2009 budget proposal, welfare spending increases by only 6.86 percent, which is below the 7.2 percent increase for the budget as a whole. Lee Tae-su, a professor at Hyundo University of Social Welfare, noted that the Lee administration had publicly announced a policy of “active welfare.” He said, however, that when he looked at the details of the budget proposal, it was difficult to find evidence that the government had been active in allocating funds to the welfare budget. He called it a retreat from welfare because the administration is maintaining current spending levels, which are still insufficient amid surging inflation.
The government’s plans to curb welfare spending will continue beyond 2010. According to a report released on September 30 by the Ministry of Strategy and Finance, spending on social welfare will expand at an annual average rate of 8.4 percent between 2009 and 2012. However, if pension fund expenditures are subtracted, the growth rate would stand at 6.57 percent, a level similar to the overall annual increase in spending of 6.2 percent. Between 2005 and 2008, spending on social welfare, excluding pension funds, rose at an average annual growth rate of 9.28 percent.
Beginning next year, spending on childcare programs and programs for women, the family, the elderly, the young and the underprivileged will decline significantly. Spending on childcare, women and family affairs rose at an annual rate of 42 percent between 2005 and 2008, or from 700 billion won to 1.6 trillion won during that period. However, the government is now planning to increase welfare spending at an average annual rate of 9.5 percent between 2009 and 2012. While spending on the elderly, the young and the underprivileged had increased at an annual average rate of 31 percent between 2005 and 2008, that number will decrease to a rate of 14.1 percent over the next four years.
Kim Dong-geon, a professor at Dongseo University, said that the ratio of spending on the welfare budget to spending on the budget as a whole rose from some 18 percent in 1998 to some 28 percent in 2006, a total of 10 percentage points. Kim said that during the administration of former President Roh Moo-hyun, spending on childcare increased sharply and fiscal investment was reinforced to create social-service jobs, such as the approximately 110,000 jobs in the heath and welfare field that had been created as of August and the number of economically active women had risen accordingly, from 48.8 percent in 2000 to 50.2 percent last year. Kim said that the budget proposal expresses the administration’s desire to not add new welfare services and use only existing systems.
