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Korea should improve the quality of employment for older workers

MD Staff

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Korea should reform its employment regulations and improve social protection in order to make work more rewarding for older workers and tackle old-age poverty, according to a new OECD report.

Working Better with Age: Korea says that workers aged 50-75 years are more likely to work than their peers in other OECD countries but more often in jobs of poor quality, with low job security and wages, and limited access to social insurance. As a result, poverty rates are much higher in this age group than in almost any other OECD country.

Tackling this challenge is critical, according to the report, as Korea’s population is ageing faster than in any other OECD country. The population’s median age could reach 55 years by the mid-2050s, compared with around 40 years today. Over the same period, the old-age dependency ratio (population aged 65+ over the population aged 15-64) will increase from 20% to 70%, 20 percentage points above the OECD average.

At almost 70%, Korea’s employment rate of older workers aged 50-64 is relatively high – 6.6 percentage points above the OCED average. But most workers retire early from their main job before reaching 55 and have to start new employment or a “second career” in poor quality, highly insecure and low-paid jobs or become self-employed. Workers in Korea effectively retire at an average age of 71-73 years – the oldest of any OECD country. This implies that they typically spend 20 years in precarious employment before leaving the labour market.

For most workers, early retirement from the main job results in lower earnings and potential hardship. Korea has the second-highest rate of relative income poverty among people aged 50-64 among all OECD countries.

Structural reforms could reduce labour market duality, which affects older workers disproportionally. Measures should be taken to reduce the gap between wages and productivity, which increases with age and contributes to pushing older workers out of regular jobs, and the gap in job quality between regular and non-regular jobs.

This requires tackling employers’ practices with respect to early retirement plans while at the same time moving away from seniority-based practices for setting wages and granting promotions, reforming the hiring and dismissal rules for regular and non-regular work, and strengthening social protection. Providing good opportunities for workers to upgrade their skills and learn new ones throughout their working careers is also a key requirement for fostering longer working lives in good quality jobs.

Recent government initiatives to postpone the age of mandatory retirement, to promote a job- and competency-based system for setting wages, and to reduce working time, could help increase older workers’ productivity and improve working conditions, but questions remain as to whether these measures will be forcefully implemented.

The OECD recommends that Korea take further action in three areas.

First, employers should be encouraged to retain older workers in their main jobs, e.g. by:

  • Fostering the introduction of wage peak systems to ease the postponement of the age of mandatory (early) retirement.
  • Proactively promoting the implementation of job- and skill-based professional appraisal measures, instead of seniority-based practices.
  • Providing additional employment rights for temporary agency workers as well as new business opportunities in the temporary work agency sector.

Secondly, a number of measures could promote the employability of workers, such as:

  • Strengthening second-career guidance for middle-aged and older workers.
  • Monitoring closely the implementation of the new guidelines on working time.
  • Introducing employer-paid sick leave and a statutory cash sickness benefit to facilitate the return to the main job of workers experiencing health problems.

Thirdly, a number of measures could improve the income situation of older workers, such as:

  • Raising payments for persons over age 50 provided by the earned income tax credit and improving the coverage among older self-employed workers.
  • Targeting the Basic Pension to the most needy and increasing benefit amounts.
  • Improving the pension scheme coverage among self-employed and non-regular workers and making the scheme financially sustainable.
  • Fostering the implementation of retirement pension plans, especially in small and medium-sized enterprises.
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Renewable Energy the Most Competitive Source of New Power Generation in GCC

MD Staff

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Renewable energy is the most competitive form of power generation in Gulf Cooperation Council (GCC) countries, according to a new report published today by the International Renewable Energy Agency (IRENA). Abundant resources, together with strong enabling frameworks have led to solar PV prices of below 3 cents per kilowatt hour and dispatchable concentrated solar power (CSP) of 7.3 cents per kilowatt hour, which is less than some utilities in the region pay for natural gas.

IRENA’s new ‘Renewable Energy Market Analysis: GCC 2019’ launched during Abu Dhabi Sustainabilty Week, says achieving stated 2030 targets can bring significant economic benefits to the region including the creation of more than 220 000 new jobs whilst saving over 354 million barrels of oil equivalent (MBOE) in regional power sectors. The targets could reduce the power sector’s carbon dioxide emissions by 136 million tonnes (22 per cent reduction), while cutting water withdrawals in the power sector by 11.5 trillion litres (17 per cent reduction) in 2020.

The findings come as GCC economies seek to diversify their economies against the backdrop of fast-growing domestic energy demand and a desire to safeguard hydrocarbon export revenues for the future.

“The GCC is among the most attractive regions in the world to develop large-scale solar and wind energy projects as a result of resource abundance and a favourable policy environment, a fact that is backed up by record low prices,” said IRENA Director-General, Adnan Z. Amin. “As a fossil-fuel exporting region, the GCC’s decisive move towards a renewable energy future is a signal to global investors and to the energy community that we are experiencing a step-change in global energy dynamics and a true energy transformation.”

“The UAE’s commitment to diversifying the energy mix is central to our long-term economic growth and sustainable development objectives,” said H.E. Suhail Al Mazrouei, UAE Minister of Energy. “IRENA’s GCC analysis provides further evidence of the strong socio-economic case for renewable energy deployment, from job creation to emission reductions. As we look to add generation capacity to serve growing populations and expanding economies, renewables will increasingly serve as central pillar of low-carbon development.”

At the end of 2017, the region had some 146 GW of installed power capacity, of which renewable energy accounted for 867 megawatts. Around 68 per cent this capacity was in the UAE. This represents a four-fold increase on capacity in 2014. Following the UAE are Saudi Arabia with 16 per cent and Kuwait with nine per cent of regional capacity.

With renewable energy targets now in place across the region, the GCC is poised for a significant acceleration in renewables deployment as countries pursue national goals. Under current plans, the region will install a total of almost 7 gigawatts (GW) new power generation capacity from renewable sources by the early 2020s.

Solar PV dominates the region’s renewables outlook, accounting for three-quarters of the regional project pipeline, CSP and wind accout for 10 per cent and nine per cent respectively. Solar-assisted enhanced oil recovery in Oman is also expected to contribute about 1 gigawatt-thermal (GWth) in 2019.

Proactive policies are central to accelerating renewable energy deployment, per the report, suggesting that lessons can be drawn from the GCC countries where substantial inroads have been made thanks to firm government commitments and credible, time-bound targets with a clear focus on a supportive business environment for investments.

IRENA

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Corporate tax remains a key revenue source, despite falling rates worldwide

MD Staff

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Taxes paid by companies remain a key source of government revenues, especially in developing countries, despite the worldwide trend of falling corporate tax rates over the past two decades, according to a new report from the OECD.

A new OECD report and database, Corporate Tax Statistics, provides internationally comparable statistics and analysis from around 100 countries worldwide on four main categories of data: corporate tax revenues, statutory corporate income tax (CIT) rates, corporate effective tax rates and tax incentives related to innovation.

The new OECD analysis shows that corporate income tax remains a significant source of tax revenues for governments across the globe. In 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data is available. This figure has increased from 12% in 2000.

Corporate taxation is even more important in developing countries, comprising on average 15.3% of all tax revenues in Africa and 15.4% in Latin America & the Caribbean, compared to 9% in the OECD.

Corporate tax revenues have also held up when considered as a percentage of GDP, where the average share increased from 2.7% of GDP in 2000 to 3.0% in 2016 across the jurisdictions included in the database.

The new OECD analysis shows that corporate tax remains a key source of revenue, despite a clear trend of falling statutory corporate tax rates – the headline rate faced by companies – over the last two decades. The database shows that the average combined (central and sub-central government) statutory tax rate fell from 28.6% in 2000 to 21.4% in 2018. More than 60% of the 94 jurisdictions for which tax rate data is available in the database had statutory tax rates greater than or equal to 30% in 2000, compared to less than 20% of jurisdictions in 2018.

Comparing statutory corporate tax rates between 2000 and 2018, 76 jurisdictions had lower tax rates in 2018, while 12 jurisdictions had the same tax rate, and only six had higher tax rates. In 2018, 12 jurisdictions had no corporate tax regime or a corporate income tax rate of zero.

The OECD analysis highlights that CIT revenues are influenced by many factors, and therefore focusing on headline statutory tax rates can be misleading. For example, jurisdictions may have multiple tax rates with the applicable tax rate depending on the characteristics of the corporation and the income. Progressive rate structures or different regimes may be offered to small and medium-sized companies, while different tax rates may be imposed on companies depending on their resident or non-resident status. Some jurisdictions tax retained and distributed earnings at different rates, while some impose different tax rates on certain industries. Lower tax rates are often available for firms active in special or designated economic zones, and preferential tax regimes offer lower rates to certain corporations or income types.

Another factor influencing CIT revenues is the definition of the corporate tax base. The OECD Corporate Tax Statistics database assesses how standard components of the corporate tax base reduce the effective tax rate faced by taxpayers, including the effects of fiscal depreciation and several related provisions, such as allowances for corporate equity.

Taking these provisions into account, the database shows that “forward-looking” effective tax rates are generally lower than statutory tax rates, with an average reduction of 1.1 percentage points observed in 2017 across the 74 jurisdictions analysed in the database. Targeted tax incentives, such as for research and development (R&D) expenditures and intellectual property (IP) income, are widely used to reduce the corporate tax burden for specific activities.

The new database is intended to assist in the study of corporate tax policy and expand the quality and range of statistical information available for analysis under the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative. In 2015, the OECD reported that base erosion and profit shifting was having significant effects on the corporate tax base, estimating revenue losses to governments from BEPS in the range of USD 100-240 billion (2014 figures), equivalent to 4-10% of corporate tax revenues.

The new database, which will be updated annually, aims to improve the measurement and monitoring of BEPS. Future editions will also include an important new data source – aggregated and anonymised statistics of data collected under country-by-country reporting now being implemented under BEPS Action 13 – that will allow “backward-looking” assessment of effective tax rates actually paid by firms.

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Global Commission Describes New Geopolitical Power Dynamics Created by Renewables

MD Staff

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Political and business leaders from around the world have outlined the far-reaching geopolitical implications of an energy transformation driven by the rapid growth of renewable energy. In a new report launched today at the Assembly of the International Renewable Energy Agency (IRENA), the Global Commission on the Geopolitics of Energy Transformation says the geopolitical and socio-economic consequences of a new energy age may be as profound as those which accompanied the shift from biomass to fossil fuels two centuries ago. These include changes in the relative position of states, the emergence of new energy leaders, more diverse energy actors, changed trade relationships and the emergence of new alliances.

The Commission’s report ‘A New World’ suggests that the energy transformation will change energy statecraft as we know it. Unlike fossil fuels, renewable energy sources are available in one form or another in most geographic locations. This abundance will strengthen energy security and promote greater energy independence for most states. At the same time, as countries develop renewables and increasingly integrate their electricity grids with neighbouring countries, new interdependencies and trade patterns will emerge. The analysis finds oil and gas-related conflict may decline, as will the strategic importance of some maritime chokepoints.

The energy transformation will also create new energy leaders, the Commission points out, with large investments in renewable energy technologies strengthening the influence of some countries. China, for instance, has enhanced its geopolitical standing by taking the lead in the clean energy race to become the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles. Fossil-fuel exporters may see a decline in their global reach and influence unless they adapt their economies for the new energy age.

“This report represents the first comprehensive analysis of the geopolitical consequences of the energy transition driven by renewables, and a key milestone in improving our understanding of this issue,” said Commission Chair Olafur Grimsson, the former President of Iceland. “The renewables revolution enhances the global leadership of China, reduces the influence of fossil fuel exporters and brings energy independence to countries around the world. A fascinating geopolitical future is in store for countries in Asia, Africa, Europe and the Americas. The transformation of energy brings big power shifts.”

“The global energy transformation driven by renewables can reduce energy-related geopolitical tensions as we know them and will foster greater cooperation between states. This transformation can also mitigate social, economic and environmental challenges that are often among the root causes of geopolitical instability and conflict,” said Adnan Z. Amin, Director-General of IRENA.

“Overall, the global energy transformation presents both opportunities and challenges,” continued Mr. Amin. “The benefits will outweigh the challenges, but only if the right policies and strategies are in place. It is imperative for leaders and policy makers to anticipate these changes, and be able to manage and navigate the new geopolitical environment.”

The Commission says countries that are heavily reliant on fossil fuel imports can significantly improve their trade balance and reduce the risks associated with vulnerable energy supply lines and volatile fuel prices by developing a greater share of energy domestically. With energy at the heart of human development, renewables can help to deliver universal energy access, create jobs, power sustainable economic growth, improve food and water security, and enhance sustainability, climate resilience and equity.   The report was launched by the Commission at IRENA’s ninth Assembly in the presence of ministers and senior policy makers from more than 150 countries.

IRENA

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