The Korea Herald


[News Focus] Korea sees tax burden grow 3rd-fastest in OECD

In 2020, 29 of 36 OECD members post ‘eased’ tax burden

By Kim Yon-se

Published : Sept. 22, 2021 - 17:05

    • Link copied

Headquarters of the Organization for Economic Cooperation and Development in Paris (OECD) Headquarters of the Organization for Economic Cooperation and Development in Paris (OECD)
SEJONG -- South Korea posted No. 3 in the growth of tax burden for workers last year among members of the Organization for Economic Cooperation and Development.

According to the French-based organization, Korea saw the tax wedge -- a barometer for taxation levels by measuring the difference between before-tax and after-tax salaries -- post 23.256 percent in 2020, up 0.307 percentage point from 22.949 percent a year earlier.

The OECD defines tax wedge as the ratio between the amount of taxes paid by an average single worker (or a single person at 100 percent of average earnings without children) and the corresponding total labor cost for the employer. The average tax wedge measures the extent to which tax on labor income discourages employment, and the indicator is measured in percentage of labor cost.

A positive growth in tax wedge means that workers are saddled with a higher tax burden.
(Graphic by Kim Sun-young/The Korea Herald) (Graphic by Kim Sun-young/The Korea Herald)
The pace in the increase of tax wedge in Korea was the third-fastest among the 36 members of the OECD as of 2020 on-year. Of the total 37 members, Colombia was not included in the analysis.

Korea placed next to Australia with a 0.416 percentage point growth and New Zealand with a 0.344 percentage point growth.

While four more countries had a positive growth in the index, which indicates a higher tax burden of salaried workers, their growth in tax wedge stayed under 0.1 percentage point: 0.089 in Sweden, 0.087 in Turkey, 0.06 in Portugal and 0.044 in Norway.

The other 29 members posted a negative growth, which means the tax burden of their workers eased in 2020 -- when the pandemic initially hit the world -- compared to 2019.

Though the tax burden of Korean workers was still lower than the OECD average workers, the OECD average declined by 0.389 percentage point on-year to record 34.626 percent last year.

Italy saw the steepest decline as it posted minus 1.908 percentage points in tax wedge. The second-steepest was seen in the US with minus 1.365 percentage points, followed by Hungary with minus 0.939 percentage point, Finland with minus 0.924, Luxembourg with minus 0.918, and Ireland with 0.859.

Minus 0.559 percentage point is seen in France, minus 0.535 in the Netherlands, minus 0.276 in Germany, minus 0.254 in Denmark, minus 0.225 in Switzerland, minus 0.102 in the UK, and minus 0.021 in Japan.

Most emerging economies in the OECD also recorded a decline in tax wedge. These included Poland (by 0.76 percentage point), Lithuania (by 0.757), Slovakia (by 0.623), Latvia (by 0.622), Slovenia (by 0.553).

Declines of 0.01 or more were also seen in the Czech Republic, Estonia, Chile and Mexico.

Korea, after recording 21.802 percent of the labor cost in 2016, has continued to show quite a high pace in the positive growth of tax wedge: 22.012 percent in 2017, 22.444 in 2018, 22.949 in 2019 and 23.256 in 2020.

This contrasted with the continuous decline in the OECD average: 35.364 in 2016, 35.224 in 2017, 35.101 in 2018, 35.015 in 2019 and 34.626 percent in 2020.

In a similar vein, Korea topped the list in the growth of tax revenue -- the government income from taxation -- among OECD members between 2017 and 2019.

Korea’s tax revenue was equivalent to 27.38 percent of its gross domestic product in 2019. This represents a climb by 2.02 percentage points from 2017, when the Moon Jae-in administration took office and tax revenue was 25.36 percent of GDP.

The pace of growth was the fastest among 35 OECD members for which 2019 figures were available. Australia and Japan were excluded from the analysis.

Korea far exceeded the OECD average of a 0.1 percentage point growth over the corresponding two-year period -- from 33.74 percent of GDP in tax revenue in 2017 to 33.84 percent in 2019.

Further, 11 of the 35 members posted negative growth in their government income from taxation during the 2017-2019 period.