ED Taxpayers' growing burden

Restructuring populist welfare programs is urgent

Korean taxpayers are struggling with a surge of taxes and quasi-taxes. According to the National Assembly Budget Office, Korea's ratio of tax revenue and social security contributions to gross domestic product (GDP) hit 26.8 percent last year, up 1.4 percentage points from the previous year, the biggest rise in 10 years.

The ratio, usually called the “national burden ratio,” has been on the rise since 2014 due largely to the increased tax burden and rises in various social security and healthcare expenses. The national burden ratio differs from the tax burden ratio in that it calculates tax revenue plus social security contributions like health insurance premiums. Korea's tax burden ratio came to 20 percent last year, up 1.2 percentage points from 2017, the biggest increase in 18 years.

Korea's national burden ratio still looks low, compared with the corresponding OECD average of 34 percent in 2017. The problem is the pace of its increase. It posted an increase of 2.3 percentage points from 2013 through 2017, nearly double the OECD average of 1.2 percentage points in the same period.

The trend is likely to continue as the top corporate tax rate will go up from 22 percent to 25 percent and health insurance premiums will increase 3.2 percent next year.

If taxpayers bear a greater burden, the private sector cannot avoid shrinking. It would be nonsense to expect corporate investment and private consumption to be revived at the same time the government collects hefty taxes and hands out cash to woo the electorate.

The central government is expected to increase spending by more than 9 percent in next year's budget to bolster growth. Local governments are also competing fiercely to expand their welfare expenditure. These populist trends could put the Korean economy at risk if not checked properly. It's urgent to restructure welfare programs.