Research objectives and structure

The two main objectives of this study are: 1) to develop a long-term budget projection model with which to examine the long-term fiscal sustainability of social security policies; and 2) to produce actual budget projections by postulating main variables and reviewing projection methods. The authors review and analyze projection meth-ods to discern those that can most effectively identify relevant variables and reflect the interactions among those variables. Based on the authors’ budget projections, long-term predictions on the level and structure of social expenditure in Korea, and comparisons with OECD counterparts, the authors provide recommendations for im-proving the Korean social security system.

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Chapter 1 Research Background, Objectives and Structure

The Korean government established the Subcommittee for Fiscal Projection of Social Security as part of the Social Security Committee to conduct social security budget projections under the newly amended Framework Act on Social Security. The Subcommittee, consisting of officials from related departments and civilian expert s,¹⁾ organizes discussions on the methods and outcomes of fiscal projections. The Korean government, moreover, founded the Center for Fiscal Projection of Social Security at KIHASA to assist the Subcommittee in its efforts to develop a fiscal pro-jection model and in other details of the propro-jection process.

Chapter 2 identifies and discusses the categories of social expenditure, as con-ceived for long-term fiscal projection purposes. The categories of social expenditure are defined according to the Organization for Economic Cooperation and Development (OECD)’s Social Expenditure Database (SOCX), making possible in-ternational comparisons. The chapter therefore discusses the criteria used by the OECD SOCX, and their application in the Korean case.

Chapter 3 provides an overview of the main variables, including the projection period, and demographic and macroeconomic variables, as well as methods and mod-els of projection.

Chapters 4 and 5, respectively, review the selected budget projection method and the main variables of social insurance expenditure and general fiscal expenditure.

As related government departments attempted long-term projections for social se-curity expenditure previously, Chapter 4 focuses more on projection methods.

Chapter 5, on the other hand, reviews the models and methods of projection devel-oped by the Center for Fiscal Projection of Social Security (CFPSS), focusing on the main variables.

Chapters 6 and 7 analyze the findings of the social security budget projection model, and discuss future policymaking tasks based on international comparisons of

1) Organized in May 2013, the Subcommittee will be active for 11 months, until the end of March 2014. It consists of nine government officials and 12 civilian experts (including the Chairperson), as well as administrators. The Subcommittee’s administrators include the head of the Division of Social Services Policy at the MOHW, which serves as the secretariat for the Social Security Committee, as well as the head of the Center for Fiscal Projection of Social Security at KIHASA.

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￭ Long-term Projection of Social Expenditure in Korea

social expenditure levels worldwide. Assuming that the current social security sys-tem will remain intact, the authors provide long-term projections for social security and general fiscal expenditures, and discuss implications for the future level and structure of social security spending in Korea through international comparisons un-dertaken based on the policymaking categories of the OECD SOCX.

OECD SOCX Categories

1. OECD SOCX

2. Application of OECD SOCX to the 2013 Korean government budget

3. Limits of applying OECD SOCX classification to Korea, and future tasks

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Chapter

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I. OECD SOCX

Though the OECD SOCX’s budget classification guidelines are based on firm princi-ples, these principles are rather abstract for direct application to practical details. In other words, the guidelines in themselves cannot qualify as practical standards for cat-egorization, and therefore require user (subjective) interpretation for application in reality. In particular, the SOCX’s criteria for classifying expense accounts as person-nel expenses (or labor costs), operating costs, and other such items of administrative costs are especially vague. As a result, the authors of this study applied their judgment, adopting SOCX categorizations in consideration of the particularities of the Korean budget (as of 2013). This chapter discusses in detail the SOCX’s categorization cri-teria, and limits and issues in terms of the application of such categorization in Korea.

1. OECD SOCX overview

The SOCX was first introduced in 1996 to provide the indicators necessary for social policy analysis. Though the SOCX’s accounting analysis framework for social ex-penditure and revenue is modeled after the System of National Accounts (SNA), it overcomes the inability of the SNA to provide detailed information on social transfers and in-kind benefits (Varley 1986; Oxley et al. 1990). The SOCX includes data on so-cial expenditure programs for the 34 member states of the OECD and enables interna-tional comparison of social spending policies.

2) Excerpted from Goh Gyeong-hwan et. al. (2011). Comparison of Korea’s Social Expenditure Projections for 2010 and the Healthcare Expenditure of Other OECD countries.

OECD SOCX Categories

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￭ Long-term Projection of Social Expenditure in Korea

B. Principles

OECD social expenditure data is determined based on several firm, albeit somewhat abstract, principles.³⁾ First, the OECD defines social expenditure(SOCX) as:

“The provision by public and private institutions of benefits to, and finan-cial contributions targeted at, households and individuals in order to provide support during circumstances which adversely affect their welfare, provided that the provision of the benefits and financial contributions constitutes neither a di-rect payment for a particular good or service nor an individual contract or trans-fer” (SOCX manual)

In other words, social expenditure includes benefits and financial contributions provided by organizations only; inter-household transfers, even for social or public purposes, are not regarded as social spending.

Second, social expenditure includes three types of social benefits: cash benefits, such as pension benefits, childcare leave benefits, social assistance, etc.; in-kind ben-efits, in the form of care services for children, the elderly, and people with disabilities;

and tax breaks for social purposes (TBSP), such as tax exemptions for the survived family members of accident victims and contributions to private health insurances. In categorizing social benefits thus, the SOCX veers from the traditional way of divid-ing social benefits between cash transfers and in-kind benefits, and indicates that tax expenditure largely consists of cash benefits. It is for this reason that the OECD dis-tinguishes between cash and in-kind benefits on its official web site.

Third, social expenditure should satisfy two important criteria to qualify as such.

First, the benefits it supports must serve one or more social purpose. Second, the pro-grams for distributing such benefits must support the redistribution of benefits among individuals and/or enlist their obligatory participation. In other words, these benefits

3) The SOCX Manual (Adema, W., P. Fron and M. Ladaique (2011). Is the European Welfare State Really More Expensive?: Indicators on Social Spending, 1980-2012; and a Manual to the OECD Social Expenditure Database (SOCX). OECD Social, Employment and Migration Working Papers, No. 124, OECD Publishing.)

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