Income Inequality
It has been found that South Korea is the poorest at tax-based response to income inequality among OECD member countries with the degree of income inequality increasing in the country.
According to the Korea Institute of Public Finance’s report released on August 6, 30 OECD member countries’ average pre-tax and post-tax Gini coefficients were 0.469 and 0.307 as of the end of 2015 with taxation reducing the coefficient by 16.2 percentage points for an inequality reduction of 34.5% whereas South Korea’s post-tax Gini coefficient (0.307) was only 9.2% lower than its pre-tax figure (0.338), meaning tax-based mitigation of income inequality in South Korea is about one-fourth of the OECD average. Ireland recorded an income redistribution effect of as high as 47.8%, followed by Finland (46.7%), Slovenia (46.4%) and Belgium (45.1%).
The institute also pointed out that income distribution in South Korea has not improved at all since the recent global financial crisis. According to its data, the ratio of the income of the top 1% to the total income of the entire population increased from 11.08% to 11.66% between 2007 and 2012 and the ratio rose from 3.93% to 4.13% during the same period when it comes to the top 0.1%. In 2012, the average annual income of the top 1% and the top 0.1% was 222 million won and 787.4 million won, respectively.
Experts attribute this to income deductions. In 2014, the ratio of tax-exempt employees soared to 48.1% in South Korea, much higher than those of the United States (35.8%), Canada (33.5%), Australia (25.1%) and Britain (2.9%). The earned income tax exemption threshold that is applied to four-person households in South Korea rose from 16.46 million won to 32.3 million won in annual income between 2008 and 2015.
In this context, experts advise that the ratio of tax-exempt employees be reduced and property, transfer income, inheritance and gift taxes, paid mainly by the rich, be increased for income inequality reduction.