Families in Korea get fewer financial benefits from having kids

Social Affairs

Published: 28 Jan. 2024, 09:00

Families in Korea get fewer financial benefits from having kids

Visitors look around baby essentials and products at a baby fair hosted at Setec convention hall in Gangnam District, southern Seoul, in June last year. [YONHAP]

Families with children in Korea are at a bigger disadvantage financially than they would be in other countries.

Korea has the seventh smallest margin between income tax rates levied on single-person households and families with children, among the Organisation for Economic Cooperation and Development (OECD) member states.

This means that other OECD nations provide more generous tax-payable options to families with kids, while Korea does only to a lesser degree.

A single-person household with an average income in Korea paid 15.8 percent in income tax as of 2022, according to the OECD, while Korean households with two children paid 11.6 percent, leaving a 4.2 percentage point margin between the two types of households.

The average margin among OECD member countries between the two types of households was more than double, at 10.6 percent.

The country with the largest margin is Poland, where a single-person household pays 22.8 percent in income tax while families with two children pay minus 2.5 percent of income tax — meaning their received benefits outweigh their tax burdens. Germany's margin was 18.5 percent and Austria’s 22.5 percent.

The OECD found that European countries tend to be more generous toward families with children.

The more children the family has, the lesser the tax.

Countries like France and Germany offer tax benefits for families with children by adjusting taxation levels to the family headcount. Also, they set taxable units as a family, not individuals.

France adds up the household’s total income and divides it by the number of family members. Germany gives married couples two options: separate taxation or integrated taxation.

For example, in Germany, if a husband earns 100 million won ($75,000) and a wife earns nothing, the couple could report that each earns 50 million won separately to lower the progressive tax burden.

On the contrary, Korea always taxes by the individual, not as a family. The country only offers a partial discount at every year-end tax settlement for families of more than two.

The National Assembly Research Service pointed out that today’s taxation system poses an obstacle in dealing with the demographic crisis because the current system intensifies the tax burden as the number of children increases.

The baby supplies section at a supermarket in Seoul in June last year [NEWS1]

Moreover, Korean families with children have to deal with expenses for child care and parenting on top of the levied taxes.

In the third quarter last year, the average quarterly spending of households with four people was 6.36 million won, 2.9 times higher than that of single-person households.

Considering the inevitably large expenditure that families with children pay, tax cuts are a fair way to help them balance their finances, experts say.

“Lowering the tax burden for households burdened by unavoidable expenses is the right thing to do, under the same logic of imposing higher taxes on people in high-income brackets,” Ahn Chang-nam, a professor at Kangnam University, said.

“The country should not anticipate that the current system — only giving a 1.5 million won yearly discount per person — will fix the low birthrate crisis. It is the right time to consider changing our taxation unit, like France.”

Last year, People Power Party (PPP) lawmaker Kang Dae-sik proposed a tax bill amendment to adjust income tax rates according to the number of children in each household. It would lower the applied tax rates for families with one child by 2 percent, and by 3 percent for families with two kids.

However, there has been little progress in taxation structure reform.

If the amendment is made, the national tax revenue will decrease by an average of 3.6 trillion won yearly. The bill is currently pending.

Yet, the agenda of boosting the country’s birthrate, the lowest in the world, is grabbing lawmakers and politicians’ attention ahead of April 10 general elections.

Statistics Korea predicts that the total fertility rate of last year would be 0.72 and estimates this year's to dip to 0.68. The rate is predicted to reach 0.65 next year.

Fathers tend to their babies at a baby fair took place at Coex in Gangnam District, southern Seoul, in October last year. [YONHAP]

The PPP proposed increasing the monthly wages paid during the parental leave by 600,000 won. The party also suggested mandating that all fathers take a monthlong paid paternity leave.

The Democratic Party suggested providing a 10-year loan of 100 million won for newlyweds. The party also proposed leasing 59-square-meter (635-square-foot) houses for families with two children.

But experts question the feasibility of such benefits.

“The country must understand the fundamental reasons why young Koreans are not keen to get married, rather than focusing on babies or births,” Cho Young-tae, a professor at Seoul National University, said.

“The endless population influx to greater Seoul area made competition more severe, making people think that it is wiser not to have a baby in this situation,” he added.

“The government and authorities must find a way to alleviate this harsh competition.”

Apartments in the central Seoul area, as seen from Namsan in March last year. [NEWS1]

“Populism-oriented cash support and incentives are pouring out these days,” Choi Seul-ki, a professor at KDI School of Public Policy and Management, said. “It is highly questionable whether such cash offers will really change people’s attitudes toward childbirth and the costs of parenting.”

Incentives and benefits offered in an attempt to encourage childbirth and marriages have continued, but to scant substantial outcomes.

The number of newborns during the month of November last year was 17,531, the first November with a newborn count below 18,000.

According to Statistics Korea, monthly newborn counts have stayed under 20,000 since last April.

If December’s monthly newborn count ends up being less than 16,428, last year would be the first year in which annual newborns were than 230,000.

Concerns of this year’s total fertility rate falling below 0.7 are growing.

Pedestrians walk by a wedding dress store in Mapo District, western Seoul, in December last year. Statistics Korea announced that there were 1.10 million newlywed couples in 2021 and 1.03 million in 2022, marking 6.3 percent decrease over a year. [YONHAP]

The bigger problem perhaps lies in the declining marriages, a pretext of birthrate.

The first half of the last year saw an increase in marriages compared to 2022. With all the Covid-19 restriction measures lifted, many couples rushed to get married in early 2023.

However, the rise was short-lived. In the second half of the last year, except for October, the country's marriages decreased compared to 2022.

Specifically, in last November, a total of 16,695 couples were married — 4.4 percent less than the same month in 2022.

Demographic experts are making no promises of a rosier future, even though the government forecasts a rise in marriage counts.

Birthrates are not likely to rebound this year as the marriage cases increased only during the first half of the year.

“The marriage counts only hiked in the first half and shrank in the latter half. Thus, it is not likely that the birthrate will rebound this year,” Prof. Choi said.

“With the '90s young adults entering the marriage market, the country once anticipated that marriage counts would increase. However, the reality is going in the opposite direction.”

BY JEONG JIN-HO, YI WOO-LIM, LEE SOO-JUNG [lee.soojung1@joongang.co.kr]