Public Tax and Pension Burden to Rise in 2013

Despite a series of tax cuts, the annual tax and pension burden of a family of four is expected to exceed 30 million won (25,380 U.S. dollars) by 2013.

This was according to data released yesterday by the Strategy and Finance Ministry to minor conservative Liberty Forward Party Rep. Lim Young-ho as part of the annual parliamentary audit of the government.

Tax revenues and pension contributions as a share of GDP are expected to drop from 26.5 percent this year to 26.4 percent next year, but will rise to 28.1 percent by 2013. Consequently, the burden for an individual will rise from 5.6 million won (5,000 dollars) this year to 7.85 million won (6,640 dollars) by 2013.

Tax revenues will account for 20.1 percent of GDP next year, down from 20.5 percent this year, and rise to just 20.8 percent in 2013 thanks to tax cuts. Per capita tax burden will rise from 4.33 million won (3,663 dollars) this year to 4.52 million won (3,824 dollars) next year, and to 5.8 million (4,900 dollars) in 2013 due to the expansion of GDP.

The rapid rise in the social welfare burden, including four major public pensions and health insurance, is the main reason for the expected hike in the people’s burden despite no significant change in the tax burden ratio.

Furthermore, the government’s pension reform is targeting more collection and less payout to prevent pension funds from drying out, and social insurance premiums are progressively increasing with rising incomes.

A ministry official said, “It is inevitable for the people to take on a bigger burden because of rising incomes. In fact, the burden ratio for Koreans is below the average of the Organization for Economic Cooperation and Development (35.9 percent as of 2006).”

Lee Yeong-hwan of the National Assembly Budget Office said, “Considering the aging population and low fertility rate, the burden ratio is close to the OECD average. It is undesirable to interpret current numbers as a rationale for increasing the burden ratio.”