OECD: Korea Should Lower Transaction Taxes and Raise Holding Taxes on Real Estate

Korea Economic Survey Released on July 2
Mid-term Fiscal Targets Needed to Address Aging Population
OECD Proposes Raising University Tuition and Reducing Local Education Grants for Elementary and Secondary Schools
Performance-Based Wage Reform Su

As the Lee Jaemyung administration prepares to overhaul real estate taxation, the Organisation for Economic Co-operation and Development (OECD) has recommended that South Korea shift its property tax system from a transaction-based model to one that focuses on holding-based taxes. In addition, the OECD advised raising the pension eligibility age to address fiscal risks stemming from low birth rates and population aging, easing employment protection for regular workers to improve the dual labor market structure, and transitioning toward a performance-based wage system.

On July 2 (local time), the OECD released its 'OECD Economic Surveys: Korea 2026,' which included these recommendations. The OECD reviews the economic trends of its member countries every two years and publishes country reports that include policy analysis and recommendations.

Apartment complexes near Dongtan Station, Hwaseong-si, Gyeonggi-do on the 30th. On this day, the Ministry of Land, Infrastructure and Transport announced that Dongtan-gu in Hwaseong-si, Giheung-gu in Yongin-si, and Guri-si will be newly designated as regulated areas (adjustment target areas and speculative overheating districts). Yonhap News Agency

"Proportion of Holding-based Real Estate Taxes at Half the OECD Average... Corporate Tax Should Be Unified"

In the area of tax reform, the OECD pointed out issues with South Korea's real estate taxation system. While the country's total property tax revenue is relatively high compared to other OECD countries, the proportion of holding-based taxes—which cause less economic distortion—remains excessively low. In fact, holding-based taxes account for only 29.4% of South Korea’s total property tax revenue, about half the OECD average of 56%. The OECD recommended, "In the long term, taxation should be based on market prices," and added, "Higher tax rates should be applied to assets with low utilization, such as vacant properties or second homes, to improve efficiency."

The OECD also suggested converting the current four-tier progressive corporate tax structure into a 'single corporate tax rate' and reducing various tax expenditures, including credits and exemptions. Furthermore, it recommended narrowing the proportion of tax-exempt workers, which currently stands at 32.5% of all wage earners, to broaden the income tax base. In the medium to long term, the OECD emphasized the need to move toward uniform taxation on various types of capital gains, such as stocks. Additionally, it noted that tobacco retail prices and tax burdens in South Korea are low compared to major countries, recommending an increase in tobacco taxes. The OECD further called for closing loopholes in the business succession system that allow for inheritance tax avoidance, and expanding the proportion of paid allocations via auction under the greenhouse gas emissions trading scheme.

Direct Hit from Low Birth Rate and Aging... OECD Recommends Raising Pension Eligibility Age by 2035

The OECD warned that urgent, medium-term fiscal consolidation is needed to address South Korea’s chronic issues of low birth rate and population aging. It advised the government to establish medium-term fiscal targets aligned with the long-term sustainability of national finances and to undertake bold spending restructuring. In particular, the OECD recommended raising the pension eligibility age in stages, linking it to contributors’ payment ages, by 2035 to ensure the sustainability of the National Pension Scheme.

As the contribution of labor to national growth is declining, the OECD also indicated the need for a comprehensive overhaul of the entire education system. The report stated, "Competition is intensifying, such as through concentrated private tutoring for college entrance exams, yet there is insufficient emphasis on developing critical thinking and self-directed learning skills, resulting in continued difficulties with youth employment."

Accordingly, the OECD proposed that universities be allowed to raise tuition fees to increase competitiveness. It also recommended gradually reducing the proportion of local education grants for elementary and secondary education (Local Education Grant Fund), which currently account for 20.79% of total domestic tax revenue and are automatically allocated, despite the rapid decline in the school-age population. The recent boom in the semiconductor industry has increased national tax revenues, intensifying the debate over this grant system.

"Ease Employment Protection for Regular Workers and Abolish Seniority-based Pay"

For labor market structural reform, the OECD presented measures to resolve the dual labor market structure (gaps between regular and non-regular workers). It recommended easing excessive employment protection for regular employees and expanding social insurance coverage. The OECD particularly noted that the current seniority-based wage system encourages early retirement and discourages companies from investing in employee training, recommending a transition to a wage system linked to job characteristics and performance. It also called for abolishing mandatory retirement ages set by companies, and for gradually raising the statutory retirement age.

Meanwhile, the OECD assessed that South Korea’s economy is recovering despite recent challenges such as the declaration of martial law and the war in the Middle East. Based on this, it forecast that the country’s economic growth rate will reach 2.6% and the inflation rate will be 2.6% in 2026.

A government official stated, "We will closely review the policy recommendations proposed by the OECD and actively refer to them in pursuing major structural reforms in real estate taxation, pensions, labor, and education going forward."

This content was produced with the assistance of AI translation services.