In its latest report released on Thursday, the Paris-based organization said strong semiconductor exports, resilient employment and recovering domestic demand have supported the economy, "despite headwinds from the Middle East crisis."
But it cautioned that the country's increasing reliance on chips leaves it more vulnerable to "external shocks and cyclical volatility."
The report then called for broad tax and pension reforms to strengthen the country's long-term fiscal sustainability, saying additional revenue will be needed to cope with rising spending pressures from its rapidly aging population.
It stressed that tax reform can "raise revenue and underpin growth," saying that "strengthening the fiscal framework could help achieve long-term sustainability."
"The [South Korean] government should intensify ongoing efforts to reallocate spending to improve efficiency and reduce distortive or poorly targeted support, while also addressing unmet spending needs," it added. "Reducing tax expenditures and increasing revenue from indirect and corrective taxes can contribute to a simpler, more growth-friendly tax system."
It also urged South Korea to reduce its reliance on property transaction taxes and shift toward recurrent holding taxes, saying such a move would boost residential mobility and improve the efficiency of the housing market. "High transaction taxes on immovable property could shift towards recurrent taxes to boost residential mobility," it said.
The report also found that South Korean adults' skills, which helped drive the country's rapid growth, are "below average with skills deteriorating sharply with age, despite heavy investments in education and private tutoring."
"Refocusing resources towards education and training more closely aligned with in-demand skills and policies to improve labor market matching would encourage adult and on-the-job learning," it said.
Meanwhile, the OECD projected the country's GDP growth to strengthen to 2.6 percent this year and 1.9 percent next year, driven by "consumption, fiscal support, and continued export strength linked to the semiconductor cycle."
Copyright ⓒ Aju Press All rights reserved.