Home family property stay trapped in a distorted construction, excessively concentrated in non-financial property akin to actual property. Asset imbalance poses vital considerations because it constrains liquidity and acts as an impediment stopping capital movement to productive sectors akin to company funding. Consultants level out that tax reform of the monetary earnings taxation system and the institution of long-term funding incentives are pressing to construct a virtuous cycle construction of company progress and family asset accumulation.
On Dec. 8, the Federation of Korean Industries (FKI) launched these findings by a report titled “Comparability of Main International locations’ Family Asset Composition and Coverage Duties,” commissioned to Prof. Tune Heon-jae of the College of Seoul. Based on the report’s evaluation, the proportion of non-financial property, together with actual property, in home family property recorded 64.5% this yr. That is roughly twice as excessive in comparison with main developed international locations akin to the US (32%) and Japan (36.4%). It’s also greater than 10 share factors increased than the UK (51.6%). With property tied up in tangible properties akin to buildings and land, households face restricted liquidity securing and funding alternatives.
Even inside monetary property, the desire for protected property was pronounced. The proportion of money and deposits expanded from 43.4% in 2020 to 46.3% this yr. The proportion of monetary funding merchandise akin to shares, bonds, and funds retreated from 25.1% to 24% throughout the identical interval. This contrasts with US households, the place the proportion of monetary funding merchandise elevated from 51.4% to 56.1%. Japan additionally confirmed an growing pattern with monetary funding merchandise rising from 15.2% to twenty.9%, aided by the weak yen impact and authorities inventory trade reforms.
The FKI steered that basic surgical procedure of the taxation system is critical to enhance family asset composition. The present dividend earnings tax and capital beneficial properties tax have advanced constructions and multi-tiered tax charges that cut back funding incentives. The report argued for introducing a system that imposes a 15% single tax price as separate taxation on monetary earnings, which mixes curiosity and dividend earnings with inventory capital beneficial properties. The logic is that monetary earnings makes use of after-tax earned and enterprise earnings as its supply, so the double taxation burden needs to be alleviated.
Tax advantages to encourage long-term funding had been additionally recognized as important duties. The FKI emphasised the necessity to reintroduce income-deductible long-term funds, which have been restricted from new subscriptions since 2015. They argued for making a long-term funding tradition by stress-free subscription circumstances akin to whole wage quantities and contribution limits. A plan to use earnings deductions for losses incurred when promoting monetary funding merchandise held for greater than 10 years was additionally proposed. America permits capital losses to be deducted from common taxable earnings inside an annual restrict of $3,000.
The need of strengthening schooling to enhance monetary literacy was additionally talked about. The argument is that monetary schooling, scheduled to be launched as an elective topic for highschool sophomores in 2026, needs to be expanded to elementary college college students. It is because teams unfamiliar with monetary funding usually tend to be uncovered to monetary fraud dangers. Lee Sang-ho, head of the Financial and Industrial Headquarters on the FKI, mentioned, “The family asset construction concentrated in actual property undermines the vitality of the nationwide economic system,” including, “We should promote monetary funding tradition to concurrently pursue nationwide asset accumulation and company progress.”
