Pres. transition committee freezes welfare spending cap

The presidential transition committee on Wednesday said it will freeze the ceiling cap on spending for welfare projects pledged by President-elect Park Geun-hye at 134.5 trillion won (123.6 U.S. billion dollars).

A high-ranking committee member said, "The funding needed for the pledges were decided based on close analysis," adding, "There will be no additional funding and the pledges will be kept as planned." The committee delivered the plan to the Strategy and Finance Ministry, which is in charge of devising measures on welfare funding sources.

The Finance Ministry will submit a final report on revenue sources for the welfare spending to the committee next week.

The ministry is known to be examining the financing plans without canceling the president-elect`s pledges. The method of meeting the budget ceiling will be controlling the time of pledge execution and adjusting the limits on tax breaks, including tax exemption.

The plans are considered a desperate attempt to keep the president-elect`s pledge not to raise taxes.

A high-ranking ministry official said, "Many pledges didn`t state execution time and beneficiaries," adding, "The pledges can be implemented by adjusting the time or beneficiaries."

For example, the president-elect pledged to expand child rearing expenses for single-parent families from 50,000 (46 dollars) to 150,000 won (138 dollars) a month, but did not say when such support will begin. Assuming that 100 billion won (91.9 million dollars) is needed annually to implement this pledge, the funding gap would be four times that amount if financing starts next year or 2017, the final year of her term. On a similar note, she also pledged financial support for low-income households for the purchase of modified milk powder and diapers for babies under a year old, and said this will be reflected in the 2014 budget. The scope of low-income households to be benefit has yet to be decided, however, meaning there is room for adjustment.

On Finance Minister Bahk Jae-wan`s recent proposal to impose a ceiling on tax exemptions or deductions, a ministry official said, "Once the cap is placed, it can be tightened vertically to reduce tax breaks."

Setting a tax break ceiling is one way of imposing a minimum income tax to individuals. A minimum corporate tax is set to force companies to pay a certain level of tax even if they get tax exemptions or deductions. Income tax has no such safeguard, however, with 40 percent of Korea`s wage earners paying no income tax.

The Finance Ministry will also discuss the supplementary budget after the Feb. 25 launch of the new administration based on a comprehensive assessment of economic conditions. The decision reflected the outgoing administration`s policy of stressing fiscal soundness. The president-elect`s pledges will be examined in the first half this year if they are to be reflected in the 2014 budget plan. Because the next president ruled out fiscal spending in her pledge of 8 trillion won (7.35 billion dollars) in funding for the low-income class, the ministry is mulling using funds from Korea Asset Management Corp.

Other pledges she made are known to be undergoing adjustments to the extent that they do not interfere with the big picture, including implementation time. Basic pension will be paid at different rates for four groups based on eligibility and income level.

The government`s plan to pay all medical expenses for four major diseases for citizens and provide support dental implants for the elderly will be adjusted for content or time. The expansion of the earned income tax credit, a guaranteed wage for basic livelihood and customized anti-poverty measures will be promoted this year as scheduled.

buddy@donga.com