Gift tax cut necessary, but not to pull up birthrate

The Korea Times

The Korea Times

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Sun, December 3, 2023 | 18:52

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Gift tax cut necessary, but not to pull up birthrate

Posted : 2023-07-19 16:35

Updated : 2023-07-19 16:35

By Yoon Ja-young

The Ministry of Economy and Finance announced recently that it is considering easing the gift tax on newlyweds to encourage marriage and thereby pull up the birthrate.

Currently, parents can give up to 50 million won ($40,000) in cash or property gifts to their adult children over a period of 10 years without being subject to the gift tax. For example, if parents give 100 million won to their children, they can exclude a gift tax deduction of 50 million won and apply a 10 percent gift tax rate to the remaining amount.

The government is considering pulling up the baseline for tax exemption to 100 million won to 150 million won for money given to newlyweds. Details will be included in the tax revision plan scheduled to be announced at the end of this month.

This move has sparked controversy as it is seen as a tax break that primarily benefits those who are relatively better off. Average parents cannot afford to give their children over 100 million won without having financial worries for their own retirement. A survey last year showed that the average net worth of households headed by individuals in their 50s was 535 million won, most of which was the value of their home. In the case of households headed by individuals aged 60 or above, the average net worth was only 483 million won. If you marry off two children and give them each 100 million won or 150 million won, you are left with only 200 million won ― and perhaps without a home.

I think the plan would not have annoyed people if the government had not promoted the gift tax cut as a part of its policy to pull up the low birthrate. It only led to the question, "Doesn't that mean that only rich people should get married and have kids?"

There is no need to regard it as a "sin" for parents to work hard, save money and pass it on to their children. There just needs to be a social consensus on the extent to which this should be allowed without tax.

It is true that those who are in a comfortable financial condition are already providing support to their children getting married. They are practically not monitored by the National Tax Service if the sum is below 200 million won or 300 million won, and it is time to admit the reality.

It is also problematic that the gift tax exemption limit has remained the same while both the cost of living and income have increased significantly over the past several years. The deduction limit has not changed since 2014 when it was raised from 30 million won to 50 million won. It is necessary to adjust the deduction limit to reflect inflation.

The measure can also revitalize the economy by transferring wealth from the older generation to the younger generation who have a higher tendency to spend.

If one is to find a link between money, marriage and the low birthrate, the more fundamental problem in Korea is that you need a lot of money to get married, rather than the gift tax levied on newlyweds. According to a survey of 1,000 newlywed couples by matchmaking service provider Duo, the total cost of marriage was 330.5 million won. The cost of a new home accounted for 279.77 million won, while wedding expenses and spending for banquet halls totaled 15.73 million won and 10.57 million won, respectively. It has nearly doubled since 2014 when the total cost was around 180.28 million won.

Many middle-class parents in Korea often downsize their homes and use the money to fund their children's newlywed life. It obviously weighs on parents in the country which are not protected enough by the social safety net for the retired. While the gift tax for children should be reduced to reflect reality, the low birthrate should be tackled with standard tactics of relieving burdens to newlyweds, such as supplying them with affordable housing.

The writer is finance editor at The Korea Times.

yjy@koreatimes.co.kr