Planning and Budgeting in Social Welfare

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Planning and Budgeting in Social Welfare

• John M. Kim
• Center for Fiscal Analysis
• Korea Institute of Public Finance

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Outline

• Overview of Korean welfare budget
• Nature of welfare spending
• Welfare planning as forecasting
• Planning vs. budgeting

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Overview of Korean Welfare Budget

• Growth of Welfare Budget (tr. won, )

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Overview of Korean Welfare Budget

• Composition of Welfare Budget ( of GDP)

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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

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2. Nature of Welfare Spending
Technology Development Economic Growth
Infectious High Extended Informal
Chronic Low Nuclear Formal
Diseases Birth Death Rates Population Age
Structure Family Type Support Networks
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2. Nature of Welfare Spending
Technology Development Economic Growth
Korea
Public Health Sanitation Hospitals
Medicine Nutrition Short-term Planning
implementation
Social Insurances Pensions Health Care
Unemployment Social Assistance Long-term
Forecasting
Welfare Programs Welfare Budgeting
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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

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3. Welfare Planning as Forecasting
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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)

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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

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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)

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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
• Koreas 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

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Supplement Population Aging in Korea
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Supplement Gini Index for Korea