South Korea’s aging population will become a significant financial burden to the country’s younger generation, a study showed on Monday.
People in their 20s and 30s will pay an average 100 million won ($97,400) more than the actual public benefits they will receive as a result of the government’s growing fiscal deficit resulting from the rising costs of supporting the country’s growing elderly population.
That is compared with those currently in their 60s, who in 2011 received an average 40 million won ($39,000) more in public benefits than they paid for, according to a working paper released by the Bank of Korea. Those in their late 50s will also receive net benefit from their payments, the report said.
The report, titled “Impact of Demographic Change upon the Sustainability of Fiscal Policy,” said South Korea has already transitioned into an aging society, and the rapid growth of the elderly population, coupled with the falling birthrate, could weaken the country’s long-term fiscal conditions.
As of 2013, those aged 65 or older accounted for 12 percent of the country’s 50 million people. The tally is expected to rise to 24 percent by 2030 and 32 percent by 2040, the report said, citing data from Statistics Korea.
As government expenditures are growing, tax revenues have dropped significantly.
Data from the Korean Financial Investment Association shows the government’s debt from bond sales exceeded 500 trillion won ($480 billion) this year, worth some 35 percent of the country’s gross domestic product. In the meantime, the government will be able to collect some 208 trillion won ($202 billion) in tax this year, some 8.5 trillion won less than its initial target revenue of 216.5 trillion won for the year, according to the finance ministry data.
Kim Myoung-chul, coauthor of the study, warned of a Japan-like fiscal deficit and said the government needs to focus more on improving tax revenues.
He said in the report that if the Seoul government were to sustain its current fiscal, public and pension expenditure structures, it could face a situation similar to “Japan’s 20 years of lost growth.”
“There are urgent needs to introduce countermeasures for the future economic sustainability,” he added.
