[Editorial] Childbirth Subsidy Plan Won’t Work If Childcare Fees Stay Regulated

Deputy Prime Minister and Minister of Finance and Economy Han Duck-soo announced that he was considering the introduction of a special purpose tax for encouraging childbirth.

By levying such a tax, the economic authorities have reportedly considered using that money in subsidizing child rearing for low-income households, supporting reproductively-challenged couples and providing financial support for childbirth of working mothers. Faced with mounting criticism, the Ministry of Finance and Economy (MOFE) explained, “Nothing has been decided yet,” but creating another special purpose tax to tackle the low birth rate is a crude idea in itself. It is irresponsible for the government to simply hand over the burden to the citizenry, rather than coming up with institutional incentives which it, by definition, is supposed to work on.

Furthermore, it has been a long while since eradication and streamlining of existing special purpose taxes have been high on the agenda for taxation policies, as special purpose taxes under several respective pretexts have been inefficiently managed and have distorted the taxation system. Under such circumstances, creating another special purpose tax is more of an anti-reform measure than taxation reform.

When it comes to the issue of childbirth, the role of the government is more than important. The Organization of Economic Cooperation and Development (OECD) estimates that Korea will see its birthrate surge from the current 1.13 to a maximum 2.5 if it beefs up assistance for childbirth and child rearing to the level of advanced countries. The OECD also suggests measures, such as introducing a tax cut that directly reduces childcare expenses, improving official childcare centers for pre-school children, expanding part-time job opportunities for women, and guaranteeing childcare leave periods. In particular, it emphasizes that a tax cut alone will increase the birthrate by 0.5. Nevertheless, the government has simply stuck to collecting more taxes.

What is worse, those who need childcare services are suffering as relevant ministries confront with each other over childcare policies. Deputy Prime Minister Han announced that he would consider lifting regulations on childcare fees for private childcare centers, starting in 2007 in an effort to enhance the quality of childcare services, while Minister Jang Ha-jin of the Ministry of Gender Equality and Family (MOGEF) opposes the plan.

Jang advocates the “public nature of childcare services,” but childcare facilities are so insufficient that only one out of four pre-school children under three has access to official childcare centers. Even among these facilities, state-owned and public childcare centers account for a mere 5.5 percent. If it is impossible to dramatically increase state-owned and public childcare facilities right now, private capital, at least, should be allowed to provide a variety of childcare services. This can be made possible only by withdrawing regulations on childcare fees, but the authorities in charge—the MOGEF—still insist on regulations on the basis of egalitarianism.

The OECD points out that simply adding more childcare facilities can raise the birthrate by 0.4. It is worth revisiting whether the MOGEF is virtually hindering childbirth. Rather than being busy trying to provide face-saving childbirth bounties or one-time childrearing expenses, the government should come up with substantial measures such as a tax cut and liberalization of childcare fees.