Runaway welfare

The New York Times on New Year’s Day told of a 33-year-old humanities Ph.D holder in Spain who lives with his parents because he has no job. The article also described a law degree holder in Italy who makes counterfeit documents to allow others to receive welfare for the disabled in lieu of taking decent jobs.

This reflects the situation in which young people became a “lost generation” due to lack of jobs or future because the older generation enjoyed excessive welfare. Student demonstrations that have swept Europe in recent years have demanded no tuition hikes, but former Italian Prime Minister Giuliano Amato blames “anger toward the older generation who preemptively ate up the younger generation’s shares in advance.”

In Korea, main opposition Democratic Party Chairman Sohn Hak-kyu said Tuesday, “The Korean disease that robs the working and middle class of hope is weighing on society,” adding, “Our party will treat the disease via a fair social system, welfare and peace.” He called his party`s proposal to offer free school meals, medical services and education “callings of our era and the centerpiece of community revival.” If the party’s estimate is accurate, Korea needs some 2 trillion won (1.78 billion U.S. dollars) to cover free school meals and another 8.1 trillion won (7.2 billion dollars) for free medical services per year. If policies on free education and housing and the halving of college tuition are implemented, the national budget will have to increase astronomically.

The Democratic Party claims no extra burden will occur if tax cuts for the rich are revoked and the budget for the four-river restoration project is slashed. This is wishful thinking, however. If Korea leaves the four rivers as they are, chances are high that flood prevention costs, which reach billions of dollars every year, will rise. Elimination of tax cuts for the wealthy look good on the surface as “revocation of tax reductions for the rich,” but securing funds for welfare is impossible unless the tax burden on most hardworking people increases. The only way might be to increase national debt, but this has reached a dangerous level. If state finances grow weak, even a small economic shock will put heavy pressure on the population. Jobs will disappear, income will fall, and investment will wane, casting a dark cloud over the nation’s future. The brunt of the hardship will be taken on by none other than the lower-income working class. If taxes are continuously raised to fund excessive welfare, the rich will probably shun investment and spending in the domestic market and seek to send money overseas. This will slow money circulation in Korea and sap vitality from all of society.

In announcing free medical services as its platform Thursday, the party said, “This will be possible by levying health insurance fees on financial and home rental incomes and raising state subsidies.” A study by the Korea Hospital Association, however, said people will have to pay three times (95,300 won or 84.70 dollars) more in average monthly health insurance premiums per person. Can premium payers bear such a sudden rise in their burden? It will also require additional expenses paid by companies (6.2 trillion won or 5.5 billion dollars), and subsidies from the state coffer (3.2 trillion won or 2.85 billion dollars). State budget does not grow on trees but instead comes from taxpayers. Companies that cannot afford extra insurance costs will shun hiring additional staff. In essence, this will not be free medical services but a tax bomb and job destroyer. Excessive welfare spending and rising corporate expenses will drive out foreign-invested companies as well. If reckless and lavish welfare spending ends up increasing the public’s tax burden, worsen government finances day after day, and drives out foreign capital, the economy will stop growing. Then the population of 50 million will lose their livelihood. Children and grandchildren of the older generation will become more vulnerable and miserable. Politicians who seek to win instant approval through competing populist ideologies and cheating on the public, even when a disaster is clearly predicted, are committing a felony.

Korea’s percentage of social welfare spending (11.83 percent) is just 49 percent of that of Northern European nations such as Sweden and Denmark and 80 percent of that in the U.S. and Japan. Korea’s economic level, however, lags behind those advanced economies. Koreans shoulder a smaller tax burden than people in advanced economies as well. Nonetheless, Korea cannot afford to make the same mistake as did certain European nations such as Greece and Portugal, which only increased welfare benefits irrespective of their economic growth and put themselves in fiscal crises. Young people in Europe have held a left-leaning ideology but are increasingly negative toward it, saying they will suffer due to left-leaning parties and unions that stress welfare spending and labor protection.

The Korea Institute for Health and Social Affairs recently said, “Koreans think that Korea must pursue universal welfare and that the state must proactively intervene in reducing income gaps,” adding, “Nonetheless, they have a negative view on raising taxes to expand welfare.” Voters must know that welfare is not free but comes from taxpayers’ money. Left-leaning groups have trumpeted “free” to win the 2012 general elections and presidential election but have never mentioned tax. Yet they will have no other way to fulfill their pledges other than through tax hikes. As the government struggles to provide welfare to people above the middle class level, those in the low income bracket who genuinely need a social safety net might not benefit from state assistance.

The Korea Economic Research Institute said, “If social welfare spending continues to increase at the current pace, Korea’s national finances could resemble those of Southern European nations suffering a fiscal crisis within 10 years.” Irresponsible politicians are sowing the seeds that could drive children used to free school meals to stage protests 10 years later due to a horrendous job market, high taxes, and an empty state coffer.