The lack of means to raise funds for the new government’s massive welfare programs are fueling discord among the central and municipal governments as well as between the political parties, forcing some of the programs to be scaled back.

President Park Geun-hye has promised the expansion of a wide range of welfare policies from reducing university tuition fees and increasing old-age pensions to providing a cheaper childcare system. To finance some of them, the central and municipal governments would share the burden, according to the plans.

Although estimates put the cost of the projects at tens of trillions of won for five years, the president repeatedly pledged to achieve it all without major tax hikes. Instead, she highlights the need to tighten any leaks or inappropriate use of the existing welfare budget.

The new administration’s plans for increasing its tax revenues without raising tax rates is also criticized of falling far short of the mark.

With political bickering narrowing down on the government’s tax reform plans that the opposition claims is a “tax hike bomb in disguise,” the long list of welfare programs is left hanging in the balance without a clear direction of how they will be implemented or improved.

As of now, the government plans to raise 50 trillion won ($44.5 billion) of the estimated 135 trillion won required to fund Park’s election pledges over her five-year term by reducing tax breaks, and imposing stringent taxation on the underground economy and on the financial markets. 

However, the government’s tax reform plans are estimated to raise only about 12 trillion won over the next five years.

With the situation standing as it is, even the ruling party has not completely ruled out raising taxes.

“The right thing to do would be to raise taxes after asking for (the public’s) understanding if measures to revive the economy prove insufficient to finance the promise with the public,” Saenuri Party floor leader Rep. Choi Kyung-hwan said.

The main opposition Democratic Party, for their part, is calling on the government to increase corporate taxes and reduce tax exemptions for high-income groups.

“The tax reduction for the rich must be abolished in order to prevent a fiscal breakdown and expand welfare,” DP floor leader Rep. Jun Byung-hun said at a recent supreme council meeting.

“(Making the public) choose between welfare and a tax hike is in fact a threat against the public. It raises suspicion that (the government) will flip its welfare pledges using the public opinion, which has deteriorated over the tax reform plans, as an excuse.”

The ruling party, however, is resisting the possible corporate tax hike, saying that it will only hamper the economy.

“Corporations make various decisions based on tax rates and other factors. In other words, raising the corporate tax rate will result in corporations’ reducing investments and (the number of) jobs created,” Rep. An Chong-bum, the Saenuri Party’s representative for the parliament’s Special Committee on Budget and Accounts, said in a recent interview.

“It will not only reduce (local firms’) global competitiveness but also decrease foreign investment in Korea.”

As bureaucrats and politicians throw around ideas and accusations, the lack of welfare funding is already talking its toll on various regional governments.

Gyeonggi Province Governor Kim Moon-soo announced last week that the province will scrap the entire 87.4 billion won set aside for free school lunches in its 2014 budget.

Kim claimed the cutback was inevitable due to the growing budget deficits, but the Gyeonggi Provincial Office of Education is reacting strongly against his decision.

The Seoul Metropolitan Government has also raised concerns about the growing financial burden of providing free child care, a key welfare project of the Park administration.

As its budget deficit grows, Seoul City plans to stop providing child care support from October. Although the city has secured an additional 135.5 billion won, the supplementary budget is expected to run out by September, preventing the continuation of related services.

Child care services have been expanded to all children age 5 and under starting this year. Previously, state child care subsidies were provided only to households in the bottom 70 percent income group.

Seoul City and its district offices are blaming the central government for pushing for the welfare plan without considering local governments’ finances.

Last week, Seoul began an advertisement campaign calling for the expansion of state subsidies to the city.

“State support for free child care has remained at only 20 percent of the total budget with the remaining 80 percent coming from the city,” an official from the city government said.

Seoul said an additional 370 billion won is needed to provide child care service to all children aged 5 and under, claiming that the state subsidy should be increased to 40 percent.

By Choi He-suk and Oh Kyu-wook
(cheesuk@heraldcorp.com) (596story@heraldcorp.com)