The South Korean government plans to create a new "future response fund," financed by surplus tax revenue from semiconductors and other sources, and concentrate investment in core areas such as young adults. At a fiscal strategy meeting on the 21st, Minister of Planning and Budget Park Hong-keun formalized the fund's launch, saying the country needs "a fiscal reserve where we can store money when it is abundant and draw on it when it runs short." The government intends to invest the fund, expected to exceed 100 trillion won, across four areas — support for young adults, new growth engines, regional revitalization, and education and talent development — to prime the pump for growth. It will also overhaul the local education finance grant system, which allocates 20.79% of domestic taxes, and channel the additional money raised into the fund. The government appears to be moving quickly, planning to submit a package of future fund bills to the National Assembly on the 3rd of next month alongside the budget proposal.
The problem is that the government's plan could unsettle the basic principles of fiscal management. The National Finance Act stipulates that any surplus tax revenue for a given year must first be used to repay government bonds. With the potential growth rate falling steeply, the government's intention to allocate additional revenue to future investment is not hard to understand. But there is an order and a set of principles for making and carrying out policy. When national debt and interest costs on government bonds are snowballing because of expansionary fiscal policy, the reasonable course is to use tax revenue first to improve fiscal soundness. Yet Minister Park has put the sequence backward, saying the government "will repay bonds if necessary."
The government should not brush aside concerns that the future fund could degenerate into a government slush fund. While the annual fund management plan itself is subject to review by the National Assembly, in some cases the government can change the substance of a project — within a range of 20% to 30% of the spending amount for major items — without submitting a revision to the Assembly. That is why critics say the government could, in effect, achieve a "permanent supplementary budget" without prior approval from the National Assembly.
The future fund is a precious asset built from the sweat of companies and workers. An astronomical sum is being accumulated now thanks to the semiconductor boom, but raising the fund could become difficult once this cycle turns. Serving as a source of funding for future investment matters, but measures to strengthen the nation's fiscal soundness must be considered alongside it. Under no circumstances should the future fund be swayed by political pressure or by local governments' demands for populist spending. This solid "fiscal reserve" must never be misused as a government slush fund or as financing for an irregular supplementary budget.
