Hankyung Research Institute: "By 2080, Welfare Benefits Will Account for 37% of GDP... Policy Restructuring Needed"

[Asia Economy Reporter Su-yeon Woo] It is projected that if South Korea's current welfare policies are maintained, total welfare benefit expenditures could reach 37% of the Gross Domestic Product (GDP) by 2080. There are claims that structural reform in welfare policies is necessary to resolve long-term fiscal imbalances and intergenerational inequality.

According to the report "Welfare Expenditure and Intergenerational Equity," commissioned by the Korea Economic Research Institute to Professor Youngjun Jeon of Hanyang University on the 17th, total welfare benefit expenditures based on 2019 welfare policies are expected to increase from 12.1% in 2019 to a maximum of 36.5% by 2080 due to changes in population structure.

The report stated that if the current tax system and social insurance premium levels are maintained, long-term fiscal imbalance is anticipated, and to resolve this imbalance, tax and social insurance premium burdens must be increased by 58.7% from current levels. Furthermore, if tax and social insurance premium burdens are raised in 2025, the national burden rate will rise to about 44% in 2025 and approximately 55% around 2070, resulting in increased net tax burdens on future generations and causing intergenerational inequality.

It also analyzed that if expanded to the OECD average level (medium welfare - medium burden), pension benefits, health-related benefits, and other benefits would need to be increased to 2.1 times, 1.2 times, and 2 times their current levels, respectively. This is because South Korea's pension benefits related to aging are at a low level, health-related benefits related to illness are close to the average, and the gap in other risk-related expenditures (unemployment, disasters, poverty, disability, etc.) is quite large.

Professor Jeon argued that considering the net tax burden of future generations (intergenerational equity), welfare benefit levels should be slightly increased but their structure should be reorganized. First, other expenditures should be expanded up to twice the current level, and the expenditure structure should be made more efficient to eliminate blind spots. Since health-related expenditures have already reached the OECD average level, they should be slightly increased (1.2 times the current level) or frozen, focusing on severe diseases and chronic illnesses. Pension-related expenditures will naturally increase due to the maturation of the National Pension and the increase in beneficiaries, so they should be frozen at the current level or increased by 15% (1.15 times) considering the wage replacement rate for low-income groups.

Professor Jeon said, "In welfare system reform, the appropriateness of the structure and intergenerational equity in resource burden are more important than reaching a certain level. Considering limited resource mobilization capacity, a significant increase in welfare benefits is not financially sustainable, so phased and gradual implementation is necessary."