The government's new 160 trillion won ($115 billion) Future Response Fund is set to operate for only about five years. According to reporting by Seoul Economic Daily on the 6th, the Ministry of Planning and Budget explained at a recent closed-door budget consultation between the government and the ruling party that it is "sorting out projects that can be wrapped up within four to five years." The remark suggests the government cannot be confident that additional tax revenue — the fund's main source of financing — will be sufficient after 2030 if the semiconductor boom ends. Until now, the government had described the fund as a "sustainable fund" with no set expiration date.
General project funds can be adjusted by up to 20% of major spending items without submitting a revision to the National Assembly, but the ceiling for the Future Response Fund is 30%. That means a larger share can be spent at the government's discretion without parliamentary checks. Not only deliberation and settlement but also the operating period can be set at the government's will. That is why concerns are emerging that the fund could degenerate into a slush fund serving political purposes.
The bigger problem is that once the fund's resources are exhausted in four to five years, related projects are likely to be shifted to the general account. Of next year's Future Response Fund, 45.4 trillion won will go to areas including young adults, growth engines, regional development, education and talent. Programs to nurture new growth engines such as artificial intelligence cannot easily be terminated even as the fund shrinks. The next administration will inevitably have to draw on the main budget, and could be pushed into a situation where the fiscal deficit deepens further.
Even though national tax revenue is set to rise by about 194 trillion won next year, national debt is projected to swell by 106 trillion won. That is because the government has finalized an "ultra-super" budget of 820.9 trillion won. Interest costs on government bonds alone will rise from about 34 trillion won this year to about 40 trillion won next year, and will exceed 51 trillion won in 2030. The government says the level is manageable, but with rising bond yields and growing welfare spending, it is too early to be reassured. If spending keeps increasing while fiscal sustainability is pushed aside, revenue shortfalls will recur when the economy weakens, and the country could fall into a vicious cycle of issuing deficit-covering bonds. Since the Future Response Fund Act must pass parliamentary deliberation by year-end, thorough supplementary work is needed. The government must also clearly define how the money will be used and carefully design the fund's duration and targets so it can be operated sustainably.
