The semiconductor supercycle is expected to boost the national treasury to unprecedented levels next year. The government plans to draft a 'super budget' exceeding 800 trillion won, based on tax revenue surpassing 500 trillion won. However, concerns are rising that relying on increased tax revenue from semiconductor companies could lead to a fiscal cliff if rigid expenditures are also expanded.
According to relevant departments on July 27, next year's national tax revenue is projected to exceed the previous estimate of 412 trillion won, reaching 500 trillion won plus. Total expenditures are set to exceed 800 trillion won, marking an increase of over 10% from this year's main budget. This will be the first time since the global financial crisis in 2009 that the government's expenditure growth rate surpasses 10%.
Park Hong-keun, Minister of the Office for Government Policy Coordination, stated on KBS's Sunday Diagnosis on July 26, "The national tax revenue for 2027 is expected to exceed the initial forecast of 412 trillion won, reaching 500 trillion won plus, marking the highest tax revenue ever anticipated."
If the government's plans materialize, the semiconductor boom will drive both revenue expansion and increased fiscal spending. However, there are concerns about whether this record tax revenue is a structural increase due to economic recovery or a temporary boom driven by profits in specific sectors.
Notably, improvements in the performance of major semiconductor companies typically reflect in corporate tax revenue the following year. Since this year's corporate tax revenue is influenced by last year's corporate performance, a downturn in the industry could lead to a significant drop in tax revenue, albeit with a lag.
Previously, the National Assembly Budget Office analyzed that corporate tax revenue can fluctuate by around 20% due to changes in economic structure and industrial environment. The operating profits of export-oriented large companies, such as those in the semiconductor sector, vary significantly with industry cycles, but existing tax revenue forecasting models have not adequately captured this, leading to increased errors in corporate tax estimates.
Recent revenue forecasts have swung dramatically between boom and bust. Unexpected large surpluses occurred in 2021 and 2022, but in 2023, the direction shifted sharply to a revenue shortfall. Repeated discrepancies in tax revenue can undermine the credibility of fiscal policy and exacerbate issues during the budget execution process.
The challenge lies in the fact that shifting expenditure is much more difficult than adjusting revenue. Rigid expenditures, such as welfare, personnel costs, pensions, and local grants, are hard to reduce once increased, even during economic downturns. If permanent expenditures are expanded based on temporary tax revenue from the semiconductor boom, the government may need to increase bond issuance or drastically cut other projects once entering a downcycle.
This is why the government is pursuing a 50 trillion won expenditure restructuring while preparing an 800 trillion won budget. The plan is to reduce discretionary spending by 15%, mandatory spending by 10%, and the total number of projects by 10%, reallocating the resources to key areas.
However, if new welfare and subsidy programs are established while restructuring existing projects, the effects of the restructuring could be negated. Critics argue that rather than merely increasing expenditures during the semiconductor boom, it is crucial to distinguish between structural and temporary components of the revenue increase to establish sound resource allocation principles.
The government’s future response fund, created from additional tax revenue, is seen as a mechanism to mitigate these risks. The plan is to invest in strategic industries like AI and semiconductors over multiple years without exhausting resources in a single year, while also utilizing this fund as fiscal capacity in the event of future revenue shortfalls or emergency supplementary budgets.
The success of next year's super budget, which exceeds 800 trillion won, will depend more on the sustainability of the resources than on the size of the expenditures. Whether the tax revenue generated by semiconductors will be used for temporary investments that enhance growth potential or solidified into irreversible fixed expenditures will determine if this revenue boom becomes a seed capital for the future or a financial burden during the next downturn.
* This article has been translated by AI.
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