A study on social security financing: Focused on social security tax

Abstract

The ratio of public social expenditure to GDP of the 38 OECD countries averages 20%, while Korea remains at 12.2% in 2019, and the fiscal expenditure on social insurance is projected to rise from 8.0% of GDP in 2020 to 22.8% in 2060. This can be attributed to such factors as population aging and maturity of the pension system. The rapidly aging trend in Korean society will generate a significant level of pressure for increase of social welfare spending in the future even if no new welfare programs are introduced. In consideration of the strong demand for a universal welfare state, expectations will inevitably rise for the state's role in implementing active fiscal policies. The main point of this issue is who will share the cost. The national taxes will be unavoidably increased as the fiscal expenditures for social security is generally financed through taxes and social insurance contributions rather than through national debt. Fortunately, Korea seems to afford additional increases of income tax, consumption tax, and social insurance premiums. A social security tax in the form of an earmarked tax is needed to finance a sustainable welfare policy. In order to respond to social uncertainty due to changes in economic conditions, continuous discussions should be accompanied on the measures how to secure social security funds with efficiency and intra- and inter-generational equity. If more burden is required by the cost increase in line with the progress of population aging, the basic structure of the system and financial resources should be continuously reviewed and discussed in more detail in order to obtain the understanding and acceptance of the payers.