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Posted : 2017-04-21 16:43
Updated : 2017-04-21 17:30

Real annual wage drops W4.1 mil. during 10 years

By Yoon Ja-young

The annual wage of workers decreased by 4.1 million won from a year earlier when taking into account inflation and taxes, a taxpayers' NGO reported Friday. It advised the government to take into account "real income" when raising taxes as otherwise it would end up hurting private consumption.

According to the Korea Taxpayers' Association, the nominal annual wage of workers subject to the earned income tax increased by 8.57 million won ($7,562), or 21 percent, between 2006 and 2015. The average annual wage of workers who paid taxes stood at 49.04 million won in 2015, which compares with 40.47 million won in 2006. The figure doesn't include 47 percent of the workers who are exempt from the taxes due to low income.

However, their wage didn't rise as much as consumer prices, which rose 24.6 percent during the 10-year-period. When reflecting inflation, the real annual wage decreased by 1.39 million won. When taking into account the 2.73 million won rise in earned income taxes and other social insurance payments such as national pension, health insurance and employment insurance, the amount of money workers get in their hands decreased by 4.12 million won, according to the association. It explained that a series of tax reforms, including scrapping of some tax deductions, led to a steep increase of earned income tax.

"While the real wage has decreased, social insurance rose steeply during the past 10 years," it noted. Health insurance rose 87 percent, earned income tax 75 percent, and national pension 23 percent, according to the institute.

The NGO pointed out that the government raises taxes and other social insurance according to rises in the nominal wage, neglecting inflation. "As a result, the income tax rises even when real wages are stagnant or even drop. The decrease in real wages leads to sluggish private consumption and low economic growth," it pointed out in the report.

According to the institute, 19 countries including the United States link the tax system with inflation to solve the problem.

Kim Sun-taek, president of the NGO, said that the working class is shouldering much of the welfare costs compared with their income.

"Presidential candidates say they can attain their social welfare pledges without a tax increase on the working class. However, when considering Korea's tax system that is favorable to capital income and the huge underground economy which takes 26 percent of GDP, salaried workers and those with low incomes will end up shouldering more of the welfare cost," he said.

"The working class has no room to shoulder more taxes when considering the falling real wage. Presidential candidates should push for a fair tax system and transparent government."

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