The South Korean government will not separately calculate the increase in corporate tax from semiconductor companies but will instead allocate the total domestic tax revenue exceeding the long-term trend of the past decade to the Future Response Fund. This initiative aims to create a "fiscal reservoir" that accumulates resources during tax revenue booms for future industry investments and can be tapped into when revenues decline.
On August 21, the government held the first meeting of the Fiscal Management Strategy Council at the Government Seoul Office, where it announced the "Future Response Fund Implementation Plan."
The core funding source for the fund is "additional tax revenue." If the domestic tax revenue budget for the following year exceeds the growth trend of the past decade, the difference will be transferred from the general account to the fund.
Additional tax revenue will be calculated based on total domestic tax revenue without isolating the actual tax payments or corporate tax increases from the semiconductor sector. However, taxes such as liquor tax, rural special tax, and education, comprehensive real estate, and transportation taxes that are earmarked for specific purposes will be excluded from this calculation.
The long-term trend will be determined by applying the average growth rate over the past decade to the domestic tax revenue from two years prior. For instance, the trend for 2027 will be based on the 2025 revenue figures adjusted by the average growth rate from 2015 to 2025.
The government chose a 10-year period to encompass both the booms and busts of the semiconductor industry, which typically fluctuates every 3 to 5 years. This approach aims to ensure sustainability by using tax revenues that exceed the long-term average from the overall industrial and macroeconomic cycles, rather than relying on single-year revenue estimates.
Any "excess tax revenue" generated when actual revenue surpasses expectations will be accumulated separately from additional tax revenue. If the revised domestic tax revenue forecast in September exceeds the initial budget, the difference will be added to the fund through off-budget methods.
While additional tax revenue reflects long-term trends due to structural economic changes or significant economic fluctuations, excess tax revenue is attributed to short-term economic variations or estimation errors. The government plans to use excess tax revenue as supplementary funding while primarily relying on additional tax revenue for the fund's main income source.
The exact amount of additional tax revenue, which will help gauge the fund's initial size, has not yet been disclosed as next year's revenue projections are still pending. The government is expected to announce the additional tax revenue figures alongside the 2027 budget and national fiscal management plan at the end of this month.
A Ministry of Strategy and Finance official stated, "The Ministry of Economy and Finance will announce the revised tax revenue estimates at the end of September, including the excess tax revenue at that time. The remaining funds from the surplus will not be substantial, but the exact figures will be confirmed after the settlement is completed."
The surplus funds will be allocated to the Future Response Fund after accounting for local allocation tax adjustments, public fund repayments, and national debt repayments. The fund's surplus will also generate income through investments in bonds and stocks.
If the revenue budget falls below the long-term trend or if a revenue shortfall occurs, funds will be redirected from the accumulated surplus in the fund to bolster the general account. This mechanism aims to mitigate the impact of economic fluctuations, allowing for increased spending during revenue booms and reducing expenditures during downturns.
The fund will consist of a general account and four project accounts focused on youth, growth drivers, local development, and education. Resources will be allocated to youth employment, housing, artificial intelligence (AI), major projects, future technologies, improving local living conditions, and higher and lifelong education.
The Ministry of Strategy and Finance will manage the entire fund, while relevant ministries will execute their respective projects. The plan is to utilize external asset management firms to manage surplus funds without creating a separate public institution or direct government investment.
The government will announce a package of legislative proposals, including the Future Response Fund Act and the National Fiscal Act, from August 24 to 28. Following a Cabinet meeting on September 1, the related bills will be submitted to the National Assembly along with next year's budget on September 3.
* This article has been translated by AI.
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