ed Learning from others

Government employees in Spain, Portugal and Greece are threatening strikes in protest of the axing of welfare programs. Korea needs to learn from this.

Fiscal malaise is spreading like forest fire in the United States, and the EU. Italy is also in financial chaos, with its bond yields doubling on returns on German bonds. The Italian government plans to incorporate fiscal balance in its Constitution. The United States must trim its deficit by $2.5 trillion over the next decade. Washington has no choice but to cut medical insurance funds and defense spending. The Japanese government is the most indebted in the world, with its debt staying at 212 percent of the GDP.

Korea's fiscal health is in a relatively sound shape now. However, the government debt has been growing at the fastest rate in the OECD.

Despite the Western welfare diseases, Korea needs to expand social spending in its anti-polarization drive. Welfare spending must increase within tax revenue and target only the needy. The country will see the same fiasco Western countries are currently going through without linking welfare spending to budgets.

Under the Lee Myung-bak administration, Korea has seen a reduction in the tax burden rate to 19.3 percent of GDP last year from 21 percent in 2007. The government will have to raise the rate in order to reduce state debts within a tolerable range.