When Salary Increases by 17%, Income Tax and Insurance Burden Rise by 39%

Income Tax and Insurance Premiums Rising Twice as Fast as Salaries
"Excessive Burden Reduces Consumption Capacity"

[Asia Economy Reporter Park Sun-mi] It has been analyzed that over the past five years (2016?2021), the increase rate of withholding income tax and social insurance premiums deducted from workers' wages was more than twice as high as the wage increase. There are calls for income tax system improvements to raise disposable income and expand consumption capacity.

On the 6th, the Korea Economic Research Institute (hereinafter KERI) announced that, based on an analysis of Ministry of Employment and Labor data over the past five years during the year-end tax settlement season, while workers' wages rose by 17.6%, income tax and social insurance premiums increased by 39.4%. Workers' monthly wages increased from 3,105,000 KRW in 2016 to 3,653,000 KRW in 2021, a 17.6% rise, but the burden of income tax and social insurance premiums increased from 363,000 KRW in 2016 to 507,000 KRW in 2021, a 39.4% increase.

Among these, the burden of income tax increased by 70.6%, from 102,740 KRW in 2016 to 175,260 KRW in 2021. This is because the income tax bracket (under 88 million KRW) has not changed since 2010. Therefore, when wages rise due to inflation and other factors, income tax is applied at a higher bracket, effectively causing an automatic increase in the tax rate.

Among social insurance premiums, the item with the highest increase rate was employment insurance premiums. Employment insurance premiums rose by 44.8%, from 20,187 KRW in 2016 to 29,229 KRW in 2021, due to rate hikes following the expansion of unemployment benefit payment criteria (maximum period from 240 to 270 days, average wage from 50% to 60%). Health insurance premiums (including long-term care insurance) also increased by 36.8%, from 101,261 KRW in 2016 to 138,536 KRW in 2021.

The rise in food and non-alcoholic beverage prices, known as table prices, also reduced workers' real wages. Analyzing OECD food and non-alcoholic beverage price index data over five years, South Korea's increase rate was 17.6%, ranking 8th among 37 countries. Especially last year, South Korea's food and non-alcoholic beverage price increase rate was 5.9%, ranking 5th in the OECD, heightening concerns about inflation.

For workers without homes, the sharply rising housing prices are also a burden. Analyzing Korea Real Estate Board data over five years, the nationwide median apartment sale price increased by 41.7%, from 260 million KRW in 2016 to 370 million KRW in 2021, and during the same period, jeonse (long-term lease) prices rose by 29.4%, from 190 million KRW to 250 million KRW. In particular, Seoul housing prices increased by 77.8% for sales and 43.1% for jeonse compared to 2016.

KERI stated that to alleviate workers' burdens and boost work motivation, the next government should introduce an income tax inflation linkage system that automatically adjusts tax brackets according to inflation and suppress rate hikes through rationalizing social insurance expenditure structures, including preventing fraudulent claims. They also emphasized the need to strive for price stability, including stabilizing housing prices.

Choo Kwang-ho, Head of Economic Policy at KERI, said, “Excessive income tax and social insurance burdens reduce workers' disposable income, shrinking their consumption capacity,” and emphasized, “If disposable income increases through income tax system improvements and price stabilization, it can contribute to revitalizing domestic demand through consumption stimulation.”

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