Welfare Budget at the Level of Advanced Nations, but Few Might Enjoy It

The government’s budget planning is being criticized for not corresponding with the nation’s current economic status. Critics say the plan is not suitable for a country with a per capita income of $15,000 as it is more for “advanced nations.” This is because the budget for SOC or R&D in science and technology, which are likely to create more jobs, has been set lower while the budget for the welfare systems has been set significantly higher.

It is estimated that the national defense budget will soar from 2005 along with the national tax burden, although the former has been set increasingly low since the 1980s under the government’s slogan of “self-reliant defense.” As a result, there are concerns that management of the national debt over 200 trillion won will have to watch out for a warning sign.

The government and the ruling party reached an agreement on a broad framework of the budget planning from 2005 to 2009 by holding Financial Planning Council three times from May 9 to 11. They decided to set the budget increase rate for the next five years at 6.6 percent per year on average, but increase the welfare budget by 9.3 percent annually. As for the national budget plan, they decided to increase it by nine to 10 percent annually under the premise of preparing for reduction of the U.S. forces in Korea, and implementing “cooperative self-reliant defense” policy.

Deputy chief policymaker of the council, Kang Bong-kyun of the ruling Uri Party, said, “The national welfare expenditure is 10 percent of GDP as of 2004, less than half of that for OECD countries,” emphasizing, “Increases in the welfare budget would be actively pursued.” However, the budgets for R&D, investment in SOC facilities, and the high-tech industry are increasingly decreasing.

Given the “OECD standard” the government is highlighting, one can tell how serious the problem is. According to the “SOC Allocation Outlook” the Ministry of Construction and Transportation submitted to the National Assembly on May 11, the accumulative amount of roads, railways, and ports in Korea is the lowest against the population and land of OECD nations. By contrast, the political parties set the increase rate for investment in SOC for the next five years at 1.6 percent, which is merely half the level of 3.8 percent from 1999 to 2004.

This is same for the R&D budget for science and technology or IT sectors. According to the Ministry of Science and Technology, the yearly average increase rate from 1971 to 2002 was 28.3 percent, and it was 14.4 percent during the financial crisis in 1998 until 2003. However the increase rate is set at mere 8.7 percent for the next five years.

Increases in the welfare and the national defense budgets will lead to a greater tax burden. The government is planning to increase the tax rate of 19.5 percent as of 2004 to 20.1 percent in 2009, five years from now, while the Uri Party lawmakers are arguing for a larger increase by one to two percentage points.

Professor Kim Jong-suk of Business Administration at Hongik University said, “The genuine implication of ‘welfare’ is to boost the growth potential by injecting budgets in areas helpful in creating jobs and bringing an upbeat economy,” worrying, “It is likely that the budget planning being discussed by the government and the ruling party would be a short-term and expedient measure.”

In-Jik Cho cij1999@donga.com