OECD Release Economic Survey of Korea

June 16, 2010 Taxation in South Korea

Korean cashThe Organization for Economic Cooperation and Development (OECD) has released its bi-annual economic survey of Korea, which praises the nation for its strong recent economic performance, and recommends areas with potential for long and mid-term improvement.

On June 15th the OECD released Economic Survey of Korea 2010, the latest economic analysis of the nation. The report commends Korea for having one of the strongest post-2008 recoveries in the OECD, which was attributed to outstanding export performance and the largest fiscal stimulus package among OECD-member states. The publication consists of four sections addressing potential issues faced by the Korean economy.

According to OECD projections, the Korean economy will expand by 5.75 percent in 2010, and 4.75 percent in 2011. In order to attain comparable levels of growth in the medium-term, Korea has been advised to instate fiscal and taxation measures to increase national labor productivity levels. Currently, the service industry in particular has relatively low levels of productivity, and needs legislative assistance. Further, regulatory changes need to be carried out to reduce fiscal legislative barriers to domestic market entry, decrease obstacles for foreign direct investment, and upgrading competition policy. The use of fiscal policy is also recommended to increase the proportion of research and development activity carried out by national service sector firms.

The OECD attributes Korea’s impressive economic recovery to the Government’s strong and effective fiscal policies. The withdrawal of crisis-period stimulus measures is now recommended to ensure continued sustainable growth. The OECD added that any policy changes also provide a good opportunity for reforms to widen the national tax base, and instate firmer treatment of planned government spending targets.

Korea currently has one of the fastest aging working populations in the OECD, and the report demonstrates that without policy change, the tax-financed sections of the health system will become a large drain on Government reserves. As a remedy, the OECD proposed reforms to health payment systems, promotion of healthy aging, shifts in long-term care focus, and reduced spending on medications.

OECD forecast place Korea’s carbon-emission levels as the highest growing in the OECD over the 1990 to 2005 period. Although, the Korean Government also demonstrates great dedication to promoting a green economy. The OECD has recommended the establishment of a emissions capping and trading scheme for the economy, with possible supplementation by an additional carbon tax scheme.

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