No. of People Aged 25-49 to Fall From 2008
By Lee Hyo-sik
Staff Reporter
South Korea should shift its economic structure to be more efficient and less labor-intensive to cope with the falling number of workers amid a rapidly aging population and low birthrate, the Korea Finance Association said Monday.
It also said the incoming administration should place greater emphasis on advancing its overall taxation system, rather than simply cutting corporate income taxes, if it wants to help businesses expand investment and create jobs.
The association said in a report that the country's economically productive population aged 15 to 64 will peak at 36.5 million in 2016 and decrease by 4 million every 10 years subsequently. It projected the number of Koreans that can participate in economic activity will fall to 22.8 million in 2050.
In particular, the number of people aged 25 to 49 who in reality perform most economic activities is expected to decrease from this year after peaking at 28.2 million in 2007. The number will plunge to 18.4 million by 2020 and further to 13 million by 2050.
The medium age of Koreans stood at 34.8 in 2005, lower than the United States' 36.1 and Japan's 42.9. But by 2020, the association forecast that the average age will reach 43.8, surpassing advanced countries' average of 42.
``Korea's rapid population aging, paired with a low birthrate, will reduce its economically productive population and lead to an era of low economic growth. The trend will also decrease state tax revenue and force the government to spend more on social welfare programs to care for the increasing elderly population, worsening fiscal soundness,'' the report said.
The association suggested that the government stop inefficient use of public resources, including the national pension fund and other state funds. ``The country should reform the national pension service and other generous welfare-related programs to maintain fiscal discipline. It also needs to refrain from undertaking uneconomical public projects and other politically motivated schemes,'' it said.
Meanwhile, the association said the government should overhaul the taxation system concerning corporations to more effectively create a business-friendly environment, rather than merely lower corporate income taxes.
The incoming administration plans to cut maximum corporate taxes from 25 percent to 20 percent. The President-elect Lee Myung-bak's transition committee has said it will reduce taxes by one percentage point per year over the next five years. Currently, companies earning over 100 million won in taxable income are subject to up to 25 percent of corporate income tax.
``Corporate tax laws should be changed to provide more incentives to encourage businesses to expand facilities, produce more goods and hire more workers,'' the report said.
It pointed out that only 45.6 percent of companies benefit from the tax deduction for investment. Currently, companies investing in Seoul and its adjacent areas are not allowed to deduct investment from their corporate taxes.
The report also said the two-thirds of member economies of the Organization for Economic Cooperation and Development have adopted the consolidation taxation system under which all affiliated companies file one collective tax report as a single entity. It said Korea should introduce the system to lessen corporate tax burdens.
For instance, with two affiliated companies. One incurs losses and the other records profits. If they file taxes separately, the one in the red pays no income tax but the other pays taxes in accordance with its taxable income.
But if the two companies file taxes together as a single entity, they pay less tax because the combined taxable income decreases. Even if the taxable income does increase when combined, in general, companies benefit more from the consolidation taxation system.