Under the assumption that the current laws and regulations are maintained as they are, baseline projections to show what would happen to revenues, outlays, the budget balance, and national debt can be a very useful tool to secure fiscal soundness, which has recently become a major political issue. Aware of the importance of baseline projections, the National Assembly Budget Office set up in April 2012 a task force in charge of baseline projections for mandatory spending programs. Over the course of a year, the task force made baseline projections for mandatory spending programs for which a flexible adjustment of spending levels is difficult, thus causing considerable strain on the national coffers. The process of baseline projections and their outcome are presented in this report.
Some key findings are as follows. First, the aggregate amount of mandatory spending would range between 151.2 trillion won and 190.8 trillion won every year from 2012 to 2016, totaling 850.6 trillion won over the five-year period. The average annual growth rate of mandatory spending is projected at 6.0% over this period, which is a faster rate than the aggregate spending projection (5.3% by the National Assembly Budget Office, 4.6% by the government). By area, the rate for welfare spending is the highest at 7.2%, followed by 6.6% for local transfer funds, 4.3% for other mandatory spending, and minus 0.8% for paying interest on the national debt. Second, in terms of the aggregate amount of mandatory spending, welfare outlays account for 38.0% to 39.7% during said period, which is the second largest share after local transfer funds. Welfare outlays consist of spending for the four public pension schemes (national pension, government employee pension, military personnel pension, and private school teachers pension), which, at 9.4%, takes up the largest portion, followed by pension payouts for the elderly (basic old age pension, long-term care insurance) at 9.1%, and basic livelihood benefit payouts at 6.0%. Of the four public pension schemes, the national pension shows an average annual growth rate of 12.5%, which is expected to be the highest of all mandatory outlays. Except for the national pension, all of the highest growth rates in spending are expected to occur for senior welfare (9.3% for long-term care insurance, 9.0% for basic old age pension). In terms of the aggregate amount of welfare spending over the five-year period, the four public pension schemes take up 46.3%, followed by employment and industrial disaster insurance at 13.8%, basic livelihood benefits at 12.8%, and health insurance coverage at 11.1%.
Considering that the growth rate of welfare expenditures is expected to be the highest of all mandatory spending programs, the report recommends that baseline projections be instituted as a means of managing fiscal conditions in the mid- to long-term, and that PAYGO and other ways to secure fiscal soundness be considered.
Taskforce for Baseline Projection of Mandatory Spending
Some key findings are as follows. First, the aggregate amount of mandatory spending would range between 151.2 trillion won and 190.8 trillion won every year from 2012 to 2016, totaling 850.6 trillion won over the five-year period. The average annual growth rate of mandatory spending is projected at 6.0% over this period, which is a faster rate than the aggregate spending projection (5.3% by the National Assembly Budget Office, 4.6% by the government). By area, the rate for welfare spending is the highest at 7.2%, followed by 6.6% for local transfer funds, 4.3% for other mandatory spending, and minus 0.8% for paying interest on the national debt. Second, in terms of the aggregate amount of mandatory spending, welfare outlays account for 38.0% to 39.7% during said period, which is the second largest share after local transfer funds. Welfare outlays consist of spending for the four public pension schemes (national pension, government employee pension, military personnel pension, and private school teachers pension), which, at 9.4%, takes up the largest portion, followed by pension payouts for the elderly (basic old age pension, long-term care insurance) at 9.1%, and basic livelihood benefit payouts at 6.0%. Of the four public pension schemes, the national pension shows an average annual growth rate of 12.5%, which is expected to be the highest of all mandatory outlays. Except for the national pension, all of the highest growth rates in spending are expected to occur for senior welfare (9.3% for long-term care insurance, 9.0% for basic old age pension). In terms of the aggregate amount of welfare spending over the five-year period, the four public pension schemes take up 46.3%, followed by employment and industrial disaster insurance at 13.8%, basic livelihood benefits at 12.8%, and health insurance coverage at 11.1%.
Considering that the growth rate of welfare expenditures is expected to be the highest of all mandatory spending programs, the report recommends that baseline projections be instituted as a means of managing fiscal conditions in the mid- to long-term, and that PAYGO and other ways to secure fiscal soundness be considered.
Taskforce for Baseline Projection of Mandatory Spending