"Universal Parental Allowance Should Be Introduced... 60% Income Replacement Rate and 0.4% Insurance Rate Are Appropriate"

Professor Yang Jae-jin of Yonsei University Department of Public Administration Advocates via K-Policy Platform
Partial Burden from General Finance through Tax Increase Including 0.5%p VAT Rate Hike

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[Sejong=Asia Economy Reporter Kim Hyun-jung] To address the serious issues of population decline and aging, the introduction of a 'universal parental allowance' through separate insurance premium payments and tax increases has been proposed. The idea is to integrate prenatal and postnatal leave benefits with parental leave benefits and expand the eligibility beyond employment insurance subscribers to the entire population. The target income replacement rate was considered appropriate at 60%, with an insurance rate of 0.4%.

On the 29th, the private think tank 'K-Policy Platform' published a report titled "The Need for Universal Parental Allowance in the Era of Ultra-Low Fertility," authored by Professor Yang Jae-jin of Yonsei University's Department of Public Administration. The K-Policy Platform is a think tank involving over 50 participants, including former ministers and vice ministers, heads of economic research institutes, and current university professors.

Professor Yang proposed that "prenatal and postnatal leave benefits and parental leave benefits should be integrated, and the eligibility expanded beyond employment insurance subscribers to the entire population by introducing a so-called ‘universal parental allowance.’" He suggested dividing the benefits into income-proportional and fixed-amount benefits, with the fixed-amount benefits covering blind spots, and designing the system with a total income replacement rate target of 60% based on average income earners.

For the income-proportional benefits, he recommended separating maternal protection projects from employment insurance to establish a parental insurance, with an insurance premium rate of 0.4% of wages, equally shared by employers and employees, creating an annual fund of approximately 2.2 trillion KRW. The fixed-amount benefits would be financed by general government funds, sourced from a 0.5 percentage point increase in the value-added tax rate, amounting to about 4 trillion KRW (with an estimated need of about 3.6 trillion KRW annually for 300,000 births).

He pointed out, "If appropriate income security is not provided during childbirth and childcare periods, the incentive to give birth significantly decreases." He added, "When looking at public compensation expenditures for income loss due to childbirth and childcare, Sweden, where fertility rates are maintained or rising, spends 0.92% of GDP, Germany 0.22%, but South Korea, where the fertility decline is severe, spends only about 0.091%."

Regarding the income replacement rate, he emphasized, "The combined income-proportional and fixed-amount benefits should target a total income replacement rate of 60% based on average income earners, and the upper limit should be raised so that the effective income replacement rate for the middle class exceeds 50%."

The parental leave benefits received by parental insurance premium payers are proposed as income-proportional, targeting a 30% income replacement rate. If paid only to childcare leave recipients, the minimum benefit would be 600,000 KRW per month, the maximum 2 million KRW per month, with a total payment period of 12 months (15 months if an additional 3 months of "dad bonus" is included). The fixed-amount benefits would be paid to all citizens regardless of parental insurance subscription or income activity, including child allowances (childcare allowances) as part of the parental allowance concept. It was explained that a fixed-amount benefit of 1 million KRW per child per month (with an additional 700,000 KRW per child for multiple births) would be paid for a total of 12 months (after which a child allowance of 300,000 KRW per month would be paid until age 13).

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