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| A boy and his grandparents walk down a street in Gwanghwamun, downtown Seoul, in this Feb. 27 photo. Korea Times file |
By Lee Yeon-woo
As Korea's population ages rapidly, wealth becomes increasingly concentrated among older people, particularly those aged over 60.
This could undermine economic activity which may otherwise be revitalized by younger people with a propensity to spend, leading experts to suggest the transfer of wealth to young people should be considered as a major policy initiative.
In line with these efforts, the Ministry of Economy and Finance will announce the finalized version of its revised tax bill by the end of this month, which is expected to include easing the gift tax on newlyweds. It is expected to raise the baseline for gift tax exemption to approximately 100 million won ($77,579) from the current 50 million won.
The government anticipates this policy will not only encourage marriage and increase the birthrate but also facilitate wealth transfer. Older people, particularly those in their 50s and 60s with children of marriageable age, tend to have low expenditure and consumption habits.
"The government policy is expected to increase the amount of wealth transfer when people marry rather than it being transferred through inheritance (when one's parents die)," said Kim Woo-cheol, a taxation professor at the University of Seoul.
According to data from Statistics Korea, as of March 2022, the net assets held by individuals in their 60s surged 79 percent from a decade ago, the greatest increase among all age groups. While those in their 30s, 40s, and 50s all saw significant increases of more than 50 percent, the net assets of those aged 29 or younger increased by only 4 percent.
The Seoul Institute projected that individuals aged 60 and over held approximately 46 percent of the total net assets in Korea as of 2021. However, the average propensity to consume among those aged over 65 dropped to a record low of 66.6 percent in the second quarter of last year.
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| An elderly man works in his shoe store in Tokyo, Japan, in September 2019. EPA-Yonhap |
Experts suggest that Korea should expedite the transfer of wealth, even more so than Japan, which has been implementing policies that promote wealth distribution.
"There's a high chance that Korea could follow in Japan's footsteps in terms of the economic implications of an aging population," Bank of Korea Governor Rhee Chang-yong said during a forum hosted by the Korea Chamber of Commerce and Industry on July 14. "However, a significant concern is that the rate of aging in Korea is faster than in Japan, and its birthrate is alarmingly low."
In Japan, gifts up to 1.1 million yen per year to one's children are tax-free. Tax is also exempt on property gifted by parents valued up to 10 million yen. Larger benefits exist for educational funds for children and grandchildren, as well as marriage and childcare funds, with respective tax exemptions of up to 15 million yen and 10 million yen.
"There exists a societal perception that the act of wealth transfer is an unjust 'passing of wealth,'" said Lim Dong-won, a researcher from the Korea Economic Research Institute. "However, it has become necessary to shift this societal understanding, taking this not merely as wealthy parents passing on wealth (to their children), but as a mechanism for stimulating economic growth."
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