Exodus of Affluence: The Wealth Drain from South Korea and Its Implications

Many assert that residing in South Korea, endowed with substantial wealth, is an advantageous choice. The nation boasts a sophisticated network of transportation and communication, coupled with a robust security framework—seemingly making it a paradise for the affluent. Yet, the reality appears to diverge from this idyllic perception. According to an analysis by Henley & Partners, a prominent investment and immigration consultancy based in the United Kingdom, South Korea is poised to witness a net outflow of approximately 1,200 high-net-worth individuals (HNWIs) this year—those with liquid assets exceeding $1 million. This prompts a critical question: Why are the wealthy choosing to depart from South Korea? Moreover, what ramifications could this exodus have on the country's economic landscape?

### The Wealthy on the Move: A Trend of Departure

In countries experiencing a significant exodus of their affluent citizens, certain patterns are discernible. The top ten nations leading in net wealth outflow, according to Henley & Partners, share a commonality—authoritarian governance that stifles freedom, coupled with precarious security conditions and pervasive corruption. This cohort includes nations like the People's Republic of China, India, Russia, Brazil, South Africa, and Nigeria. However, an intriguing anomaly emerges with the inclusion of the United Kingdom and South Korea—countries where political stability and rule of law prevail, yet the wealthy are still leaving. What unites these two nations is a steep tax burden imposed on their richest citizens.

In the United Kingdom, an inheritance tax of 40% is levied on estates exceeding £325,000 (approximately 570 million won). South Korea's taxation system, however, is even more draconian, with inheritance taxes reaching a maximum rate of 60%. Additionally, South Korea uniquely imposes a spousal inheritance tax, a rarity globally. While such high taxes might appear to be a strategy to bolster government revenues and support social welfare programs, the effect is often counterproductive. Instead of contributing more to the economy, the wealthy often relocate to more tax-friendly jurisdictions.

### The Economic Perils of Wealth Flight

Historical precedents underscore the adverse effects of driving away the wealthy through onerous taxation. Take Norway, for instance. In 2022, a seemingly modest increase in the wealth tax rate—raising it by a mere 0.1 percentage point for assets exceeding 20 million kroner (around 2.5 billion won)—prompted over 30 of the country's wealthiest individuals to emigrate.

The consequences of such an exodus can be profound. As early as the 1700s, the Dutch-born physician and philosopher Bernard Mandeville, who lived and worked in the United Kingdom, depicted a society drained of its wealthy class in his seminal work, *The Fable of the Bees*. Mandeville illustrated how the departure of the affluent led to the downfall of various industries and livelihoods dependent on their expenditure.

Adam Smith, the revered father of modern economics, was notably influenced by Mandeville's insights. In his work *The Theory of Moral Sentiments*, Smith discusses the case of a “foolish landowner,” whose indulgence in luxury and extravagant consumption inadvertently stimulates economic activity. To satisfy his insatiable desires, a multitude of goods and services are produced, thereby generating employment and fostering economic growth. This narrative serves as a poignant reminder that the spending habits of the wealthy can drive broader economic prosperity.

Sweden provides a tangible, modern example. In the mid-1970s, the country imposed punitive tax rates on its wealthiest citizens, with the top income tax rate soaring to 87%. This led to an exodus of large corporations and wealthy individuals, resulting in Sweden's per capita national income plummeting from being among the top five in Europe to 17th place by the 1990s. Recognizing the detrimental impact, Sweden eventually abolished inheritance, gift, and wealth taxes in the 2000s.

### The Global Competition for Wealth

Recognizing the economic value of wealthy individuals, numerous countries have embarked on campaigns to attract them, even if it means offering significant tax concessions. The nations leading in net wealth inflows, as identified by Henley & Partners, have adopted such strategies. The United Arab Emirates (UAE), Singapore, Canada, and Australia, for instance, either have no inheritance tax or offer other significant tax advantages. The UAE, for example, imposes no personal income tax, while Singapore does not tax dividend income. Even the United States, despite having an inheritance tax, sets the exemption limit at a generous $11.7 million (approximately 16 billion won), making it a more attractive destination for the wealthy.

In conclusion, the flight of the wealthy from South Korea, driven largely by punitive tax policies, serves as a cautionary tale. While taxing the rich might seem like a viable strategy to address economic inequality, it often leads to the unintended consequence of wealth flight, which can stifle economic growth and lead to broader economic stagnation. As other countries roll out the red carpet for the affluent, offering them favorable tax regimes, South Korea must carefully consider the long-term implications of its fiscal policies on its economic future.