Increase welfare spending but don`t raise taxes?

The results of a survey commissioned by Sound Public Finance Forum and the Korea Association of Public Finance to Korea Gallup have found that the welfare election pledges of the country`s presidential candidates will eventually suffer setbacks. Sixty percent predicted a low possibility of these pledges being implemented. The majority said welfare spending should be expanded and expressed a willingness to pay more tax, but wanted the needed additional funds to come from spending cuts or reduced tax breaks rather than tax increases. This is a double standard of wanting more welfare but being reluctant to pay more taxes.

Public demand for welfare expansion but less taxes cannot be blamed. Selfishness is part of human nature and the base of economic activity. It is also a driving principle of market economics that economic activity pursuing self-interest creates the results that everyone wants. Politics should play the role of compromising the divide between individual greed and altruism to expand national wealth and help create jobs. Economics and politics go together for this reason. If presidential candidates announce reckless welfare pledges but fail to draw public consent on the outcome, they are lacking leadership.

According to Korea Economic Research Institute, 54 trillion won (49.5 billion U.S. dollars) would be needed per year to execute the ruling Saenuri Party`s welfare pledges over the next five years, and 128 trillion won (117.4 billion dollars) to implement those of the main opposition Democratic United Party. Forces backing Saenuri presidential candidate Park Geun-hye said they will prepare an annual 27 trillion won (24.7 billion dollars) via national budget adjustment and reduction of tax benefits, but ruled out plans for an immediate tax increase. Independent candidate Ahn Cheol-soo has pushed a universal tax hike by saying, "Each individual should bear the tax burden," but is now proposing an increase in the number of taxpayers, a move that goes against the broad concept of tax sources and stirs confusion. Moon Jae-in, the candidate of the Democratic United Party, has proposed raising taxes on the rich and corporate tax, but has not explained how he will fund his massive welfare pledges.

Raising welfare spending is inevitable to prepare for welfare demand from Korea`s rapidly aging population and prolonged period of low growth. The three presidential candidates should clearly state how much should be collected and where the money will be used, then wait for the people`s judgment. As seen in Southern European countries, most of the population was complacent in welfare with many not paying taxes, eventually leading to the exhaustion of state coffers. Korea`s tax base should be expanded and tax evasion and the underground economy should be pushed up to the surface. Excess hikes in tax rates will dampen investment and income will go into hiding underground. If people or companies who earned money by working hard suffer losses, they will flee the country. Efforts are needed to boost the economy in a way to increase of the number of companies and workers paying tax, so that tax revenue is fundamentally expanded.