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2006-09-06 |
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Welfare Budget to Reach 21 Percent of GDP in 2030 |
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The Korea Times, August 31, 2006
The government plans to spend 1,100 trillion won ($1.15 trillion) on welfare programs over the next 25 years to make Korea the world’s 10th most comfortable place to live in, up from the current 29th and raise per capita income to $49,000 by 2030.
The move would mean an annual 10 percent tax hike from 2011 until 2030.
In 2030, welfare spending is forecast to reach 21 percent of the country’s gross domestic product (GDP), up from the current 8.5 percent, according to the Ministry of Budget and Planning (MPB).
Under the program dubbed Vision 2030, the government plans to double spending on research and development projects over the next 25 years, while raising the education budget to one percent of GDP in 2030 from 0.4 percent in 2006.
The government expects GDP to reach $2.4 trillion in 2030, up from $787.5 billion in 2005. Per capita GDP will top $49,000, close to Switzerland's $50,000 last year.
According to the plan, the government will raise the welfare budget by an average of 9.8 percent each year over the next 25 years, totaling 1,100 trillion won.
Taxpayers are expected to pay an additional 330,000 won per year in taxes to finance the program, which will be implemented three years after President Roh Moo-hyun’s five-year tenure ends.
The program does not take into account the possible unification of the two Koreas within the next 25 years. If unification is achieved, taxes will rise further, a Seoul professor said.
The plan will likely face fierce opposition from taxpayers because of the increases.
Between 2006 and 2010, the government plans to finance the budget increase of an estimated four trillion won by restructuring its fiscal spending programs, broadening tax bases and reducing tax deduction programs without tax hikes.
From 2011 to 2030, the government said it will have to either raise taxes or issue state bonds, or both, to fund the additional spending increase of some 1,096 trillion won in various state welfare programs.
The nation’s official development assistance (ODA) will be doubled to 0.3 percent of GDP in 2030 from 2006. The government also plans to sign a free trade agreement (FTA) with as many countries as possible.
The government said it will also restructure and advance a range of current social welfare programs, including state pensions and health insurance, while strengthening the country’s growth potential and producing a highly skilled and educated workforce.
``Korea’s social welfare spending is just one-third of advanced countries’ level today,’’ Minister of Planning and Budget Chang Byung-wan said, adding that the quality of life is low compared to those of other member countries of the Organization for Economic Cooperation and Development (OECD). OECD member countries spent an average of 21.2 percent of GDP on welfare programs in 2001.
He also said now is the time to seek a balance between economic growth and the social welfare system.
``Until 2010, we will finance the program without tax hikes. But nothing has been decided on whether to fund the increased spending through tax hikes or state bond issuance from 2001,’’ Chang said.
The government plans to reform the current state welfare programs, such as pension and health insurance, to better deal with the aging population and falling birthrate. It will lower pension benefits to subscribers, while raising the premiums over the years.
The country’s fertility rate hit a record low of 1.08 last year, down from 1.16 in 2004. The figure is far lower than the world average of 2.6 and the average of 1.57 in advanced countries.
If the current low birthrate continues, persons aged 65 or older will account for about14 percent of Korea’s population by 2018.
Also, the government plans to introduce an earned income tax credit (EITC) aimed at helping stabilize the incomes of poorly paid salaried workers and expand the program to cover about 21.2 percent of total households by 2030.
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