Planning and Budgeting in Social Welfare

1. Planning and Budgeting in Social Welfare John M. Kim Center for Fiscal Analysis Korea Institute of Public Finance

2. Outline • Overview of Korean welfare budget • Nature of welfare spending • Welfare planning as forecasting • Planning vs. budgeting John Kim / KIPF

3. Overview of Korean Welfare Budget Growth of Welfare Budget (tr. won, %) John Kim / KIPF

4. Overview of Korean Welfare Budget Composition of Welfare Budget (% of GDP) John Kim / KIPF

5. Overview of Korean Welfare Budget • Factors Underlying Welfare Spending Growth • Population aging • Public pensions • Health-care spending • Deteriorating income distribution • Transfers & training for disadvantaged • Korea faces “rich-country” problems, but without the “riches” to cope yet John Kim / KIPF

6. 2. Nature of Welfare Spending Technology Development & Economic Growth Infectious High Extended Informal Diseases Birth & Death Rates Population Age Structure Family Type Support Networks Chronic Low Nuclear Formal John Kim / KIPF

7. 2. Nature of Welfare Spending Technology Development & Economic Growth Korea Public Health Sanitation Hospitals Medicine Nutrition Short-term Planning & implementation Welfare Programs Welfare Budgeting Social Insurances Pensions Health Care Unemployment Social Assistance Long-term Forecasting John Kim / KIPF

8. 3. Welfare Planning as Forecasting • Threats to Stable Fiscal Management: Social & political pressures in late 1990s forced very large and unforeseen jumps in welfare spending • To restore stability to fiscal management: • Better forecasting of welfare needs & costs (MTEF) • Avoid large sudden shifts in intersectoral resource allocation by anticipating welfare requirements • Top-down approach to budgeting • Enforce spending envelope and improve predictability • Delegate details of social welfare management John Kim / KIPF

9. 3. Welfare Planning as Forecasting John Kim / KIPF

10. 3. Welfare Planning as Forecasting • Dual nature of long-term forecasts • Projections: Best guess, ensuring needs are met (MTEF) • Spending ceilings/targets: Allocation decisions (Top-down) John Kim / KIPF

11. 4. Planning vs. Budgeting • Different Pressures on Welfare Budgeting • Long-term pressures driven mainly by pensions and health care (may approach 20% of GDP by 2030) • Immediate pressure from low-income and disadvantaged groups for more social assistance John Kim / KIPF

12. 4. Planning vs. Budgeting • Reconciling Long-term Projections and Annual Budgets • Old approach: Line-item, bottom-up, incremental budgeting (full control) • New approach: Top-down, incremental budgeting (partial control) • Different from full autonomy: Top-down, program-oriented budgeting with autonomy within spending envelopes (programs) John Kim / KIPF

13. Final Remarks • Need to improve capacity for long-term policy analysis (at least several decades) • Hampered by lack of both analytical techniques and extensive, detailed statistical data on socioeconomic and biomedical factors • Referring to other countries’ experiences may be second-best alternative • Korea’s welfare spending in 2030 will be roughly equivalent to OECD average circa 2000. • Caution: population aging and welfare growth can be quicker than in “forerunner” countries John Kim / KIPF

14. Supplement: Population Aging in Korea John Kim / KIPF

15. Supplement: Gini Index for Korea John Kim / KIPF