[Free Speech] Welfare Policy: No More Burdens on Future Generations

35.8%. That is the share of this year’s total budget accounted for by health and welfare spending. On top of that, through the second supplementary budget, an additional KRW 1.8578 trillion was allocated for welfare spending.

A “welfare policy” is “a policy focused on raising standards for quality of life and helping all citizens live happily.” But people are not becoming happier because of welfare policy. Rather, it only places a burden on future generations. That is because the money spent on welfare ultimately becomes debt that future generations must repay.

Since COVID-19, the government has implemented a total of five emergency disaster relief payment programs, including two rounds of support for the entire population. People may welcome getting money for free, but in reality, this kind of cash-handout welfare policy cannot be called good policy. As even those who do not need welfare receive relief payments, the cost of government bonds that future generations must repay has increased. Even apart from the COVID-19 situation, the government’s welfare policies are continuing to expand. As welfare policies expand, welfare spending naturally expands as well. After the 2014 budget for health and welfare was set at KRW 106.425 trillion, ushering in the era of KRW 100 trillion in national welfare spending for the first time in history, Korea ranked first among OECD member countries in the pace of growth in welfare expenditures, and forecasts have even suggested that by the 2050s it will enter the group of “high-burden, high-welfare” countries.

As welfare spending increased, debt—the source of that funding—naturally increased as well. According to the Ministry of Economy and Finance, after the second supplementary budget was compiled, national debt this year is projected to reach KRW 963.9 trillion and rise to KRW 1,260.1 trillion by 2024. The resulting interest burden is also expected to reach KRW 20 trillion. In addition, last year the national debt exceeded gross domestic product (GDP) for the first time ever. If this situation is repeated, a substantial portion of the national budget could end up being used to repay principal and interest, causing a vicious cycle of paying off debt with more debt.

This pattern appeared earlier in Japan. The period when Japanese government bonds surged was the early to mid-1990s, and a major cause was rising welfare expenditures due to population aging. In Japan, it is known that when the elderly population ratio increases by 1%, welfare spending rises by 1% of GDP. Social security debt—debt created because the country could not sustain public pensions and insurance—has also accumulated to JPY 1,627 trillion, and because of such welfare policies, Japan still ranks overwhelmingly first in national debt, with a government debt ratio of 266%.

Unfortunately, Korea is following the same path. In fact, the pace of aging is faster than in Japan. If this vicious cycle continues, it is projected that by the time a 27-year-old reaches age 50, his or her tax burden will be seven times the current level, and by the time today’s 7-year-olds turn 50, they will have to pay more than KRW 100 million in taxes—16 times the current level. In particular, Korea urgently needs to control welfare spending because the number of people who pay into the system is shrinking due to the sharp decline in births, while the number of beneficiaries is growing rapidly because of aging.

To reduce the burden on future generations, the world is now reforming today’s problem-ridden “giveaway welfare.” Korea alone is moving in reverse by expanding it. Welfare is, of course, necessary. But what is needed is welfare that is appropriate, rational, and productive; excessive welfare that merely increases government bonds harms both the nation and its people. To reduce the burden that debt imposes on future generations, the government should stop indiscriminately expanding welfare spending and instead strengthen the economy’s fundamentals, raise growth potential, expand the tax base, and manage public finances so they remain sound.

Jinseo Lee, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 복지정책, 미래 세대 부담은 이제 그만

Author: Jin-seo Lee

Date: 2021-12-03

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=10&idx=24372