Increasing financial burden due to aging population... Discussion on tax increase necessary in the long term = Korean report

Last year, South Korea entered a "super-aged society" in which the elderly population accounts for more than 20% of the total population, raising concerns that a structural increase in the financial burden will be unavoidable.
For this reason, experts are discussing ways to expand the tax base by reviewing short-term spending, while raising the tax burden (the percentage of national income that goes to taxes) in the long term.
According to the National Assembly's Budget Office, rapid population aging and other demographic changes are cited as the main causes of the increase in the national budget burden in the future.
The government is expected to see its consolidated fiscal balance, calculated by subtracting total expenditures from total revenues, grow from a deficit of 25.7 trillion won (US$26.4 billion) this year (minus 1% of GDP) to 488.3 trillion won by 2072.
The government estimates that the deficit will increase to 1,270.4 trillion won (US$1.2 trillion) this year, or 11.6% of GDP.
The national debt to GDP ratio is expected to increase six-fold from 47.8% to 173% in 2072.
This is because the low birth rate and aging population will continue, and the increase in expenditures will be greater than the country's income. Experts say that in order to prevent such a structural shock to the finances,
He stressed that a sustainable financial foundation must be created through more efficient spending and increased tax sources. In the short term, the government's priority is to reduce unnecessary spending.
"The government is overspending even on areas that should be covered by the private sector," said Yang Jun Mo, a professor at the department. "If we can cut back on these expenditures, we can ensure fiscal soundness and encourage autonomous private sector choice."
"It will broaden the range of options and stimulate the private economy," he explained. Tax expenditures, known as "hidden subsidies," also need to be reviewed. Tax expenditures are exemptions from taxes to achieve policy objectives.
However, once the system was introduced, the system was extended even after the policy objectives were achieved, and the amount of tax reductions and exemptions was expanded.
The national government is expected to reduce or exempt approximately 78 trillion won (approximately 8 trillion yen) in taxes, bringing the national tax reduction rate, or the proportion of reduced or exempted taxes to total tax revenue, to 15.9%.
Efforts to broaden tax sources are also necessary. A representative example of a tax item that should be reviewed is the income tax.
Although the amount of tax revenue is increasing, the problem is that the proportion of tax-exempt people remains high. In fact, as of 2023, 24.7% of people filing comprehensive income tax returns and 33% of people filing earned income tax returns will not pay a single won in taxes.
"The progressiveness of income tax is high enough, but the tax base is narrow, so the percentage of tax revenue is low compared to other countries," said Kim Woo-cheol, a professor of taxation at the University of Seoul.
"We need to proactively review unnecessary income deductions with a view to reducing the tax burden," he said. In the long term, discussions on raising the low tax burden rate will be unavoidable. The tax burden rate in Korea as of 2023 is
The tax burden rate is 19%, 6.3% lower than the OECD average (25.3%). This is 31st among the 37 OECD member countries. The tax burden rate does not include social security contributions to GDP.
A lower tax burden rate means that citizens and companies have paid less tax as a percentage of the total tax.
"It is true that our tax burden rate is lower than the OECD average," he said, "but it is difficult to immediately consider the economic impact and discuss raising taxes, and if we aim to become a welfare state in the medium to long term, we need to raise taxes."
Tax reform must take place."