Super welfare budget
Concerns mounting over swift rise in gov’t spending
The Cabinet endorsed the 2018 state budget proposal of 429 trillion won ($381 billion), a 7.1 percent increase from this year, Tuesday. It is the biggest year-on-year rise since 2009 when the Lee Myung-bak administration raised spending by 10.4 percent to respond to the global financial crisis.
The highlight of the proposal is a huge increase in welfare expenditure, which takes up a whopping 34 percent of the total at 146.2 trillion won. This is the first time that more than a third of the state budget will be allocated to the social welfare, health and labor sectors.
There will also be a noticeable increase for education and national defense. On the other hand, the government will significantly reduce expenditure on public construction projects. Infrastructure spending will be cut by a record 20 percent to 17.7 trillion won.
Finance Minister Kim Dong-yeon underlined the active role of fiscal policy in establishing a healthy cycle of jobs, distribution and growth.
The “super welfare budget” reflects the urgency of the biggest challenges for the Moon administration, such as youth unemployment and an aging society. But there are some faults with the proposal that should not be overlooked by the National Assembly.
First, it is based on an overly optimistic economic outlook. The record budget increase is based on the government’s estimate that the economy will recover to achieve 3 percent growth and that total revenue will reach 447.1 trillion won in 2018, up 7.9 percent from this year. But the Bank of Korea estimate suggests that the growth forecast for this year will remain in the 2 percent range. Some experts say tax revenue may fall short of the government’s expectations and that it will raise taxes not just for the super-rich and conglomerates but also for ordinary people.
Second, there is excessive focus on ineffective welfare programs. For instance, expanding hiring in the public sector may prove a wrong approach to easing youth unemployment and only burden future administrations and taxpayers in the long run. Programs like childcare allowances are costly, but will not have the desired effect of raising the birthrate.
Third, the proposed budget lacks a long-term investment plan for the nation’s future. For example, there was no significant increase for research and development.
The proposal will be submitted to the National Assembly by Friday. The deadline for passing the proposal is Dec. 2. Before that, the Assembly should carry out a meticulous review to maximize its effect on improving the economy and the people’s livelihoods while ensuring fiscal soundness.