Gov't to set aside 162 tln won in chip-boom tax 'windfall' for sustainable growth

By Kang Yoon-seung

SEOUL/SEJONG, Sept. 1 (Yonhap) -- The South Korean government on Tuesday unveiled details of the Future Fund, which it plans to launch next year to channel an unprecedented tax revenue windfall generated from the semiconductor boom into sustainable economic growth by prioritizing "productive spending" over one-off expenditures amid the global artificial intelligence (AI) boom.

But controversy remains, with some experts arguing that the windfall revenue should be used first to improve the country's fiscal health.

Under the plan, the government will set aside 162.3 trillion won (US$117.6 billion) next year from what it defines as "windfall revenue," referring to tax earnings exceeding its long-term trend due to structural economic changes or significant economic fluctuations, such as an industrial supercycle.

Amid controversy over how the additional tax revenue is defined, the budget ministry said the concept differs from excess tax revenue, which refers to tax receipts exceeding official forecasts due to unexpected short-term economic fluctuations or forecasting errors.

"Of the national tax revenue projected for 2027, 162.3 trillion won represents additional tax revenue above the trend line calculated from internal tax revenue over the past decade," Budget Minister Park Hong-geun said at a press briefing on the 2027 budget proposal last week.

"Of that amount, 45.4 trillion won will be invested in four key areas essential to raising the country's potential growth rate, namely youth, growth engines, regional development and education, and talent development," he stressed.

"The remaining resources will be managed as reserves to cushion sharp fluctuations in tax revenue and used to bolster fiscal capacity in a timely manner in the event of a revenue shortfall," Park added.

The fund will also include part of the savings generated by an overhaul of the education budget allocation mechanism aimed at better reflecting the country's declining student population while bolstering support for higher education.

Of the 116.9 trillion won not used for program spending, 104.4 trillion won will be retained as reserves, while 12.5 trillion won will be used to reduce planned new government bond issuance.

The fund consists of a general account for managing its financial resources and four program accounts covering youth, growth engines, regional development and education, and talent development.

The four accounts will be allocated a combined 52.9 trillion won, consisting of 45.4 trillion won in expenditures and 7.5 trillion won in reserve funds.

According to the budget ministry, 13.3 trillion won will be allocated through the youth account, one of the fund's four programs, including 1.4 trillion won to help young people secure stable housing.

A total of 3.8 trillion won will be allocated to programs supporting marriage, childbirth and childcare, while 400 billion won will be used to help young people land their first jobs.

Under the growth engine account, the government will spend 14.2 trillion won, including 250 billion won to develop public-facing AI services.

Other projects financed through the account include investments in strategic technologies and infrastructure.

The regional development account will launch with 15.3 trillion won next year. The education and talent account will receive 10.1 trillion won, of which 2.6 trillion won will be used for program spending and the remainder retained as reserves.

Park, meanwhile, said the fund's sustainability would depend largely on how South Korea responds to anticipated shifts in global industries.

"Nobody knows how the current semiconductor cycle, which is expected to last around three to five years, will play out. But we can make proactive investments and better prepare for such situations," Park said.

"Future internal tax revenue will depend not only on chips but also on how much and how quickly investments in other strategic industries produce results," he added.

Experts, meanwhile, expressed concerns that the windfall tax revenue should have been prioritized for reducing the country's debt or improving its fiscal health, while others questioned the transparency of the fund's operations.

"The Future Fund may evade parliamentary oversight," said Yang Jun-sok, a professor of economics at the Catholic University of Korea. "If there is surplus revenue, it should be used to reduce the fiscal deficit and debt burden."

Kang Sung-jin, a professor of economics at Korea University, pointed out that the government should have signaled its intention to use at least part of the windfall tax revenue to repay its debt.

"This strongly reflects an intention to spend fiscal resources." Kang said.

Kim Kwang-seok, a senior researcher at the Institute for Korean Economy and Industry, noted that the fund may violate the principle that the intended use of tax revenue should be specified when taxes are collected.

Vice Budget Minister Cho Yong-beom, on the other hand, said the government decided to manage the windfall revenue through a separate fund rather than the general account to better respond to rapidly changing fiscal needs.

"Under rapidly changing conditions, unexpected spending needs may arise during a fiscal year, and the general account cannot readily address them," Cho said.

"Addressing such needs would require a supplementary budget, but it takes time to formulate and submit one to the National Assembly and execute it following parliamentary approval," Cho said, noting that the general account cannot respond promptly to rapid changes.

Cho dismissed concerns that the fund would be less transparent than the general account.

"We will comply with all relevant evaluation procedures and requirements for National Assembly oversight and control," Cho said. "Contrary to concerns, parliamentary oversight of the Future Fund will be strengthened."

Joo Won, a senior researcher at Hyundai Research Institute, noted that expenditures from the fund will still be subject to oversight, adding that it is unlikely to be spent on questionable purposes.

"We need to promptly make investments in the market and new industries. We are running out of time," Joo added.

colin@yna.co.kr
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