Mention of Local Administration and Education Budget Restructuring
Proposal to Improve Management of Surplus Funds in Pension Funds as a Measure to Increase Fiscal Revenue
[Asia Economy Reporter Geum Boryeong] Yoon Sang-hyun, a four-term senior member of the People Power Party, argued that urgent reforms are needed in the budget allocation for welfare and employment sectors, restructuring of local administration and education budgets, and pension reform in the Yoon Suk-yeol administration's fiscal policy.
On the 27th, Yoon stated in a press release, "If even the Bank of Korea's interest rate hikes add to the situation, the Korean economy will experience a phenomenon where the economy stagnates due to high interest rates despite ongoing inflation caused by supply-side factors from the Ukraine crisis. This worst-case scenario, called stagflation, could occur. How should we respond to such a situation? The answer is to manage fiscal policy soundly."
Yoon first pointed to welfare and employment sectors as areas to cut. He said, "Looking at the allocation of resources by sector within the total expenditure budget of 604 trillion won in 2022, the health, welfare, and employment sectors account for the largest portion (216.7 trillion won), followed by general and local administration (96.8 trillion won), education (83.2 trillion won), and defense (55.2 trillion won). The budget allocation in the welfare and employment sectors, which is characterized by excessive spending, must be restructured. Efficient budget allocation through work-oriented welfare policies is necessary. Systems like unemployment benefits that induce moral hazard should be reformed," he emphasized.
Along with this, Yoon also mentioned restructuring the budgets for local administration and education. He explained, "The local education finance grant is a budget fixed by law to allocate 20.79% of domestic taxes annually, but the number of students is actually decreasing. This portion should be reduced even if it requires amending the law. The local administration sector is also criticized for wasteful budget management upon closer inspection. Due to wasteful local governments and local councils, there is a significant need to restructure this budget."
He did not omit the importance of pension reform. Yoon said, "The amount spent annually to cover deficits in civil servant and military pensions alone is 5 trillion won, and this amount is expected to grow by 7% each year. This situation cannot be left unattended."
As a way to increase fiscal revenue, Yoon proposed improving the management of surplus funds in pension funds. He stated, "In 2022, the surplus funds of the pension funds amounted to 225 trillion won. Even a 1% increase in returns would generate about 2 trillion won more in revenue. One option is to integrate the surplus funds currently managed separately by each fund and operate them as one."
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