June 21 (Bloomberg) -- South Korea should increase public spending and taxes to promote income equality and cope with its aging population, the Organization for Economic Cooperation and Development said.
“Korea is confronting a serious challenge” because it will have the second-oldest population among OECD countries by 2050, Secretary-General Angel Gurria told reporters in Seoul today.
The government should consider raising value-added and property taxes to increase revenue, the OECD said in a 55-page report that was compiled at the request of South Korean President Lee Myung Bak.
South Korea should also push back the pension eligibility age to 65 from 60 to ensure the financial sustainability of the National Pension Scheme, according to the report, entitled “A Framework for Growth and Social Cohesion in Korea.”
The working-age population in South Korea is projected to begin falling in 2018 and the nation’s potential growth rate may decline to 2.8 percent in the 2020s from 4.1 percent in 2010s, according to the Seoul-based Korea Development Institute.
South Korea needs to maximize the use of woman and older workers, the OECD said. It should also rein in the use of temporary workers, which has rise to more than one-third of the labor force and is among the highest for OECD countries, according to the report.
The nation spends the equivalent of 7.5 percent of its gross domestic product on social welfare and insurance programs, compared with an average 20 percent among member countries, the organization said.
Gurria told reporters that inflation and unemployment in South Korea were at manageable levels.
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