The budget proposal for next year is expected to include a 'Future Response Fund' aimed at investing additional tax revenue anticipated from the semiconductor boom into future growth drivers. However, addressing potential overlaps with existing policy funds and securing resources amid tax revenue volatility are challenges that need to be resolved.
According to relevant government departments on July 27, the government plans to establish the Future Response Fund using additional tax revenue expected from the semiconductor boom to invest in youth, growth drivers, local areas, and talent development.
The fund will prioritize financial allocations for three mega-projects: semiconductors, artificial intelligence (AI) data centers, and physical AI. Considering the scale of additional tax revenue, the fund is projected to reach around 100 trillion won. The Ministry of Strategy and Finance stated that the specific size, accumulation method, and investment targets have not yet been finalized.
Park Hong-keun, Minister of Strategy and Finance, stated on July 26 during an appearance on KBS's 'Sunday Diagnosis,' "The Future Response Fund is based on the idea of using productive spending to open up South Korea's future growth potential. It will serve as a strategic investment to expand growth potential while also acting as a fiscal stabilization mechanism."
He added, "This is to ensure that we can utilize surplus resources even in situations where tax revenue shortfalls occur or supplementary budgets are needed. The intention is to use the additional tax revenue to establish a long-term growth foundation rather than spending it all in a single year."
The government plans to use the Future Response Fund to transform additional tax revenue, which would typically be exhausted in a single-year budget, into long-term investment resources. Specifically, it aims to prioritize financial allocations for local-led projects, local talent development, and youth asset formation and capacity-building initiatives, thereby promoting both regional balanced development and securing future growth drivers.
Given that advanced industries like semiconductors and AI require substantial initial investments, securing stable funding is crucial. The Future Response Fund is seen as a potential foundation for medium- to long-term investments. Analysts suggest that by accumulating resources during economic booms and utilizing them during downturns or when large-scale investments are needed, the stability of fiscal operations can be enhanced.
However, concerns have been raised about potential overlaps with existing funds, such as the Advanced Strategic Industry Fund, the Fund of Funds, the Regional Decline Response Fund, and the University Innovation Support Project. Notably, semiconductors and AI are already prioritized for investment in the main budget. The National Growth Fund, which aims to raise 150 trillion won over five years, is also primarily focused on investments in semiconductors and AI.
Another challenge is the stability of tax revenue. South Korea's tax revenue is significantly influenced by the performance of large corporations, including those in the semiconductor industry, and real estate transactions, leading to considerable year-to-year volatility. In recent years, instances of substantial surplus tax revenue have often been followed by tax revenue shortfalls. In such a structure, even if the fund is sufficiently accumulated during economic booms, investment resources could quickly diminish during economic downturns or a slowdown in the semiconductor sector.
The management of the fund is also identified as a future challenge. There is a need for clear criteria on how much of the additional tax revenue should be allocated to the fund and which aspect—growth investment or fiscal stabilization—should take precedence during economic downturns. Without clarifying the fund's duration, sunset provisions, performance indicators for individual projects, the effects of private investment inducement, and criteria for eliminating underperforming projects, there are concerns that the scale of fiscal projects may only expand without achieving meaningful outcomes.
Woo Seok-jin, a professor of economics at Myongji University, noted, "While there may be overlapping areas, the Future Response Fund is likely to be utilized for long-term foundational development, and efforts will be made to streamline overlaps with existing budget projects. It is advisable to separate roles, with one-year projects funded through the general budget and medium- to long-term projects funded through the fund."
He added, "Since the Future Response Fund utilizes temporary surplus tax revenue, it is also necessary to perform a fiscal stabilization function when tax revenues decline due to economic downturns. For the fund to be operated stably, it is important to clarify investment principles and usage criteria."
According to relevant government departments on July 27, the government plans to establish the Future Response Fund using additional tax revenue expected from the semiconductor boom to invest in youth, growth drivers, local areas, and talent development.
The fund will prioritize financial allocations for three mega-projects: semiconductors, artificial intelligence (AI) data centers, and physical AI. Considering the scale of additional tax revenue, the fund is projected to reach around 100 trillion won. The Ministry of Strategy and Finance stated that the specific size, accumulation method, and investment targets have not yet been finalized.
Park Hong-keun, Minister of Strategy and Finance, stated on July 26 during an appearance on KBS's 'Sunday Diagnosis,' "The Future Response Fund is based on the idea of using productive spending to open up South Korea's future growth potential. It will serve as a strategic investment to expand growth potential while also acting as a fiscal stabilization mechanism."
He added, "This is to ensure that we can utilize surplus resources even in situations where tax revenue shortfalls occur or supplementary budgets are needed. The intention is to use the additional tax revenue to establish a long-term growth foundation rather than spending it all in a single year."
The government plans to use the Future Response Fund to transform additional tax revenue, which would typically be exhausted in a single-year budget, into long-term investment resources. Specifically, it aims to prioritize financial allocations for local-led projects, local talent development, and youth asset formation and capacity-building initiatives, thereby promoting both regional balanced development and securing future growth drivers.
Given that advanced industries like semiconductors and AI require substantial initial investments, securing stable funding is crucial. The Future Response Fund is seen as a potential foundation for medium- to long-term investments. Analysts suggest that by accumulating resources during economic booms and utilizing them during downturns or when large-scale investments are needed, the stability of fiscal operations can be enhanced.
However, concerns have been raised about potential overlaps with existing funds, such as the Advanced Strategic Industry Fund, the Fund of Funds, the Regional Decline Response Fund, and the University Innovation Support Project. Notably, semiconductors and AI are already prioritized for investment in the main budget. The National Growth Fund, which aims to raise 150 trillion won over five years, is also primarily focused on investments in semiconductors and AI.
Another challenge is the stability of tax revenue. South Korea's tax revenue is significantly influenced by the performance of large corporations, including those in the semiconductor industry, and real estate transactions, leading to considerable year-to-year volatility. In recent years, instances of substantial surplus tax revenue have often been followed by tax revenue shortfalls. In such a structure, even if the fund is sufficiently accumulated during economic booms, investment resources could quickly diminish during economic downturns or a slowdown in the semiconductor sector.
The management of the fund is also identified as a future challenge. There is a need for clear criteria on how much of the additional tax revenue should be allocated to the fund and which aspect—growth investment or fiscal stabilization—should take precedence during economic downturns. Without clarifying the fund's duration, sunset provisions, performance indicators for individual projects, the effects of private investment inducement, and criteria for eliminating underperforming projects, there are concerns that the scale of fiscal projects may only expand without achieving meaningful outcomes.
Woo Seok-jin, a professor of economics at Myongji University, noted, "While there may be overlapping areas, the Future Response Fund is likely to be utilized for long-term foundational development, and efforts will be made to streamline overlaps with existing budget projects. It is advisable to separate roles, with one-year projects funded through the general budget and medium- to long-term projects funded through the fund."
He added, "Since the Future Response Fund utilizes temporary surplus tax revenue, it is also necessary to perform a fiscal stabilization function when tax revenues decline due to economic downturns. For the fund to be operated stably, it is important to clarify investment principles and usage criteria."
* This article has been translated by AI.
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