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[Editorial] Unsustainable benefits

Moon administration’s populist measures carry with them costs hard to sustain

When President Moon Jae-in took office in May 2017, his administration took over more than 10 trillion won ($8.6 billion) in employment insurance funds from the government of his predecessor Park Geun-hye.

The fund has since shrunk at a rapid pace.

It is expected to dwindle to 4.7 trillion won by the end of this year. Excluding the 7.9 trillion won borrowed from the public capital management fund, the employment insurance fund has already been depleted and is forecast to be saddled with a deficit of 3.2 trillion won at the close of the year. The borrowed money should be paid back along with interest in the years to come.

The employment insurance fund has been decreasing rapidly as the Moon administration has tapped into it to offset the negative effects of its ill-conceived policy and finance cash handouts that defeat the purpose of creating the fund.

Steep minimum wage hikes intended to shore up the government’s income-led growth drive have pushed many workers out of their jobs, increasing the number of people claiming unemployment benefits. In 2019, it also raised the amount of unemployment allowances and extended the period of receipt.

The economic fallout from the coronavirus pandemic has further precipitated the rise in the payment of unemployment benefits. The amount of allowances paid to those unemployed in 2020 reached 11.8 trillion won, more than double the 5.02 trillion won in 2017.

The Moon government has also used the fund to give subsidies to companies for hiring young adults, increase allowances for maternity and paternity leave and maintain other programs unrelated to the purpose of the fund.

Out of concerns about the depletion of the fund, the government last week decided to raise the insurance rate -- the proportion of insurance fees in a worker’s wage -- by 0.2 percentage point to 1.8 percent starting in July next year. Workers and their employers will each bear half of the increase.

The rate was set at 0.6 percent when the country introduced the employment insurance system in 1995. It has since climbed to 1 percent in 1999, 1.1 percent in 2011, 1.3 percent in 2013 and 1.6 percent in 2019.

With last week’s decision, the Moon government became the first administration to raise the employment insurance rate twice. It appears to be trying to avoid a backlash against the second increase by postponing the actual application of the heightened rate until after Moon’s five-year tenure ends in May.

A rise in employment insurance fees will result in imposing more labor costs on companies and reduce the incomes of waged workers. The Moon government may well be criticized for passing the responsibility for its failure to place the fund under proper management onto workers, employers and the next administration.

After announcing the decision to additionally raise the employment insurance rate, government officials said that the measure would increase the reserve of the fund to about 8 trillion won by 2025.

But there are concerns that the fund will only widen its deficit down the road as the government has shunned taking substantial measures to reduce payments and is planning to expand the scope of those eligible for unemployment benefits.

The risk of the employment insurance fund being exhausted is a reminder that the Moon government’s reckless expansion of welfare benefits carry costs that are hard or impossible to sustain.

Moon has boasted of measures he has taken to widen the scope of treatment covered by medical insurance. But he has made little mention of the continuous increase in the salary deductions the government makes to pay for them. The rate climbed 2.04 percent in 2018, 3.49 percent in 2019, 3.2 percent in 2020 and 2.89 percent this year. Such increase rates far exceed those under the previous Park administration, which ranged from 0.9 percent to 1.6 percent.

The Moon government has also done nothing to reform the national pension scheme, whose fund is projected to be depleted by 2055. It is a dereliction of duty to delay the reform at a time when a rapidly aging population coupled with a plummeting birthrate could spur the depletion to come much faster.

By Korea Herald (
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Korea Herald daum