Mandatory Spending Share Next Year 53.5%... 68 Trillion Won of Taxpayer Money Allocated to Four Major Pensions Only

[Asia Economy Sejong=Reporter Son Seon-hee] More than half of next year's national budget submitted by the government to the National Assembly is allocated to legally mandated expenditures. This indicates a high proportion of rigid spending that cannot be reduced at the government's discretion. In particular, the public funds spent solely on the four major pensions, including the deficit-ridden civil servant and military pensions, amount to 68 trillion won. There are calls for long-term measures amid declining birth rates and accelerating aging.

According to the '2022?2026 National Fiscal Management Plan' recently submitted by the Ministry of Economy and Finance to the National Assembly, the proportion of mandatory expenditures in next year's total budget expenditure (639 trillion won) is 53.5% (341.8 trillion won). This is the highest figure since 2012, when the budget was divided into mandatory and discretionary expenditures. Furthermore, the proportion of mandatory expenditures is expected to increase to 54.0% in 2024, 54.7% in 2025, and 55.6% in 2026.

Mandatory expenditures refer to budgets that the government is legally obligated to pay, such as the four major public pensions?National Pension, Civil Servant Pension, Private School Pension, and Military Pension?as well as health insurance, local allocation tax, and local education finance grants. In other words, fixed expenditures are increasing, reducing the government's fiscal flexibility to adjust according to policy.

Of the 341.8 trillion won in mandatory expenditures next year, the majority (91.1%) consists of legally mandated welfare spending and local transfer resources such as allocation tax and grants.

Legal welfare expenditures amount to 154.6 trillion won, accounting for 45.2% of mandatory expenditures. The four major pension expenditures?National Pension (36.2 trillion won), Civil Servant Pension (22.7 trillion won), Private School Pension (4.9 trillion won), and Military Pension (3.8 trillion won)?total 67.7 trillion won, the largest share.

Employment and labor-related expenditures, including unemployment benefits (11.2 trillion won), amount to 22.1 trillion won, while elderly-related expenditures, including basic pensions (18.5 trillion won), total 20.8 trillion won. Basic livelihood security system expenditures, including livelihood benefits, are 17.9 trillion won, and health insurance expenditures are 12 trillion won.

Local transfer resources amount to 156.9 trillion won, accounting for 45.9% of mandatory expenditures. Local allocation tax is 75.3 trillion won, and local education finance grants are 77.3 trillion won. Additionally, interest payments on national debt are expected to increase further due to the rise in national debt and interest rates, with 22.9 trillion won projected for next year and rising thereafter.

Considering pension expenditures due to rapid aging, the proportion of mandatory expenditures is expected to continue increasing while discretionary expenditures decrease. Especially given the current trends of population decline and growth rate slowdown, projections suggest that without special policy interventions, the proportion of mandatory expenditures could approach 80% by around 2060. According to government scenarios, total expenditures in 2060 are estimated at 1,648 trillion won, with mandatory expenditures accounting for 78.8% (1,297.9 trillion won). In scenarios where productivity improvements mitigate growth rate decline, the mandatory expenditure ratio is projected at 75.1%, and in scenarios where increased birth rates slow population decline, it is projected at 76.8%. In any case, the proportion of mandatory expenditures is expected to rise steadily.

This content was produced with the assistance of AI translation services.