[2021 Budget] Increase in Taxes and National Burden Rate... "Middle-Class Burden Rises"

'2020~2024 National Fiscal Management Plan'
2024 Tax Burden Rate Forecast at 19.0%
"Urgent Need for Total Expenditure Restructuring Including Welfare Spending Review"

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is reading the announcement at the detailed pre-briefing on the '2021 Budget Proposal' held at the Government Sejong Complex on the 27th of last month.

[Asia Economy Reporter Jang Sehee] The government has decided to increase fiscal spending by 5.7% over the next five years. This is to continue an expansionary fiscal policy in line with promoting the Korean New Deal and strengthening employment and social safety nets. As a result, the tax burden rate and national burden rate will decrease next year but are expected to steadily increase from 2022 to 2024.

According to the government's "2020-2024 National Fiscal Management Plan" announced on the 1st, fiscal spending (total expenditure) is planned to increase by an average of 5.7% annually over five years from this year to 2024. This figure is 0.8 percentage points lower than the "2019-2023 National Fiscal Management Plan" (6.5%) announced last year.

◆Both Tax Burden Rate and National Burden Rate Increase... 'Speed Should Be Monitored' The national tax burden is expected to rise. The tax burden rate will drop from 19.3% this year to 18.7% next year, then rise to 18.8% in 2022, 18.9% in 2023, and 19.0% in 2024. The tax burden rate refers to the ratio of national and local tax revenues to the gross domestic product (GDP).

The national burden rate, which adds social security contributions to taxes and divides by GDP, will record 26.6% next year, then steadily increase to 26.7% in 2022, 27.0% in 2023, and 27.3% in 2024, making the tax burden on citizens heavier.

Both the tax burden rate and national burden rate are lower than the average of the 37 member countries of the Organisation for Economic Co-operation and Development (OECD). However, the rate of increase is much steeper compared to the OECD average. South Korea's tax burden rate rose by 2.8 percentage points from 17.1% in 2014 to 2018, while the OECD average increased only 0.6 percentage points from 24.3% to 24.9% during the same period. The national burden rate in Korea increased by 3.3 percentage points from 23.4% in 2014 to 2018, whereas the OECD average rose by 0.8 percentage points from 33.2% to 34.0% in the same period.

There are also concerns that the tax burden on the middle class has increased due to rising income tax revenues. According to the "2021 National Tax Revenue Budget," income tax revenue is expected to increase from 40.6375 trillion won based on the third supplementary budget this year to 43.5228 trillion won next year.

◆Mandatory Spending Increased by 1 Percentage Point in 3 Years... Improving Spending Efficiency The problem does not end there. Mandatory spending, which is legally obligated and difficult to reduce, is expected to increase by an average of 5.3% annually during the 2020-2024 period. The proportion of mandatory spending in total expenditure is also expected to rise from 48.1% next year to 49.1% in 2024.

Experts advise that structural reform of spending is necessary to prevent a massive increase in the tax burden rate and national burden rate. Professor Yang Junmo of Yonsei University's Department of Economics said, "As insurance rates for employment insurance and health insurance are adjusted, the burden on citizens has increased. Welfare spending has ballooned, so we need to check whether there is any waste and if the money is reaching those who need it."

Professor Ahn Changnam of Gangnam University's Department of Taxation also said, "Due to the COVID-19 pandemic, tax revenues have decreased while welfare costs have significantly increased. Ultimately, to avoid deficits, the government has no choice but to issue bonds or raise taxes."

Meanwhile, the Ministry of Economy and Finance stated, "We will take an active fiscal role over the next five years to advance toward an innovative inclusive nation."

This content was produced with the assistance of AI translation services.