Korea's welfare spending lowest among OECD

By Yoon Ja-young

The country is spending little on social welfare compared with other developed economies. Still, experts advise that the country should be cautious in expanding social welfare programs as it is doomed to snowball with the aging of society.

According to data from the Organization for Economic Cooperation and Development (OECD), Korea’s social expenditure took 10.4 percent of its gross domestic production (GDP) as of 2014, marking the lowest among the OECD member countries.

It falls far short of the OECD average of 21.6 percent, not to mention social welfare states like France at 31.9 percent or Finland at 31 percent. Estonia, which ranked just above Korea, was spending 16.3 percent of GDP. The data shows that Korea’s welfare level is low.

However, economists say the government should still be careful in expanding welfare. Park Jong-kyu, a senior research fellow at the Korea Institute of Finance, said Korea’s social expenditure ratio is doomed to increase.

“The ratio of social expenditure to GDP is low because the system hasn’t matured yet. As time goes by, it will naturally rise as high as the other countries. That’s why we should be careful about expanding social welfare,” he said.

He cited the National Pension as an example. “Our pension system is young. There are still much more contributors than beneficiaries. Once the retirees increase and those contributing to the fund decrease, the ratio of social expenditure to GDP will surge significantly.”

“Once a welfare system is introduced, it is difficult to withdraw due to interests of diverse parties. Spending is especially inflexible in Korea as mandatory spending takes over 60 percent,” said Jin Ick, director of economic program evaluation division at National Assembly Budget Office.

“Due to a rapidly aging society and low birthrate, the demand for welfare will increase, and the spending will be expanding steeper,” he added. Park said welfare is needed for economic growth as it helps the accumulation and development of human resources.

It will also make up for household income to boost the domestic consumption. However, he also points out that the United States, which is known to have a poorer social welfare system than in Europe, is marking higher economic growth.

“There should be a balance. It is up to each state and its people to determine how much welfare should be provided. The history of each country and the philosophy of its people are behind this,” he said.

“It is silly to simply choose between the European model or the U.S. model. We need to design our own social welfare system.” Experts also say that there should be consensus on tax increases. The OECD data shows that total tax as a percentage of GDP is 24.3 percent for Korea, 28th among 30 OECD member countries.

It means Koreans are benefiting less, but also paying less tax.

“To stably support the social welfare expenditure that is expected to snowball, it is time for each person to consider shouldering more. As the tax increase requires social consensus, there should be a thorough discussion over this, taking into account our socioeconomic condition,” Jin said.