▲ The National Assembly (File photo)
The reason the government decided to create the Future Response Fund is to swiftly make strategic investments using anticipated large-scale tax surpluses next year to rebound the potential growth rate.
There is a sense of urgency that if these tax surpluses are consumed from a short-term perspective or simply injected into fiscal soundness management, the country could miss the turning point for a "grand transformation."
It also reflects a determination to seize this opportunity to create a platform that can achieve stabilization and efficiency, moving away from the mismatched patterns of tax revenue and fiscal injections.
However, some view that as the government utilizes massive amounts of state funds through a fund structure subject to relatively less parliamentary control, it could effectively degenerate into executing "constant supplementary budgets" without the consent of the National Assembly.
Projections suggest that the size of the Future Response Fund could exceed 100 trillion won, and its specific scale and projects are scheduled to be included in the budget bill to be announced soon.
According to the "Future Response Fund Promotion Plan" released by the Ministry of Budget and Planning today (August 21), the financial resources of the Future Response Fund come from four sources: ▲ additional tax revenue, ▲ excess tax revenue, ▲ remaining resources of the world surplus, and ▲ operating profits from surplus funds.
The main source of income is expected to be additional tax revenue.
If the internal tax revenue budget in next year's budget bill—announced by the government every August—exceeds the trend value of internal taxes, the excess amount is recognized as "additional tax revenue" and transferred into the Future Response Fund.
If it falls below the trend value, it is transferred from the fund to the general account.
Excess tax revenue is re-estimated based on actual taxes collected every September. If the internal tax revenue budget is larger than the revenue budget originally forecasted the previous year, the increased amount is accumulated in the fund.
Similarly, if a revenue shortfall occurs, funds are transferred out from the fund.
Remaining resources of the world surplus accumulate funds left over after sequentially going through local grant tax settlement, contributions to the public fund repayment fund, and national debt repayment from the world surplus.
Profits earned by investing in promising assets such as bonds and stocks will also serve as financial resources.
The Future Response Fund is scheduled to be utilized in four major areas: ▲ youth, ▲ growth engines, ▲ local regions, and ▲ education and talent.
The Ministry of Budget and Planning, as the fund management authority, will oversee overall operations, while relevant ministries will directly execute fiscal projects utilizing the fund's resources.
A public-private joint fund management deliberation committee involving experts and related ministries will be established, alongside subcommittees for each investment sector.
The government stated that it will invest in projects meeting the "NEXT principles," which stand for New-capital, Enterprising, fleXible, and Timely.
Specific projects will be revealed when the budget bill is announced.
The government chose a fund rather than the regular budget by utilizing additional and excess tax revenues for a "speed battle."
According to Organisation for Economic Co-operation and Development (OECD) forecasts, South Korea's potential growth rate, which can be considered the economic foundation, is projected to plummet from over 9% in the late 1980s to 1.7% this year.
Projections also suggest it will drop to the 0% range in the 2040s.
The judgment is that right now, facing the "golden time" of the artificial intelligence (AI) grand transformation, tax surpluses flowing in from the semiconductor boom must be boldly and rapidly invested to open up new growth engines for our economy.
An official from the Ministry of Budget and Planning stated, "If we consume this additional tax revenue on temporary consumptive expenditures for short-term economic stimulus or focus only on managing fiscal health, there is a concern that we will miss the turning point of the grand transformation."
The government explains that the Future Response Fund also acts as a "fiscal reservoir" that can alleviate and absorb the sharp revenue volatility occurring in our economic structure, which is heavily dependent on core industries.
When corporations generate large operating profits, there is a time lag inherent in the system where corporate tax revenues flow in the following year.
Operating an expansionary fiscal policy driven by a tax boom intensifies economic overheating and stimulates inflation.
Conversely, when the economy slows down, tax revenue decreases the following year, forcing contractionary fiscal management, leading to criticism that a "mismatch" deepens economic recessions.
Attention is focused on the scale of resources that will accumulate in the Future Response Fund.
The trend value, which serves as the criterion for additional tax revenue, is determined by the average annual growth rate over the past 10 years.
Although the Ministry of Budget and Planning did not disclose specific figures to be reflected next year, it is estimated to be around 370 trillion won.
Considering the Ministry's projected next year's national tax revenue forecast of "500 trillion won + alpha" and the fact that the proportion of internal taxes to national tax revenue is about 90%, next year's internal taxes are estimated at 450 trillion won + alpha.
Depending on the size of this "alpha," this is why projections suggest that the scale of additional tax revenue transferred to the fund for the first time could exceed 100 trillion won.
The scale of additional tax revenue is expected to be released alongside this year's budget bill, while excess tax revenue will be announced alongside the re-estimation results of tax revenues at the end of next month.
Minister of Budget and Planning Park Hong-keun said during a briefing today, "Please understand that I could not mention the fund size in advance as it is directly linked to next year's budget bill, which is in the final stages of formulation."
Concerns also exist regarding the permanence of the fund.
If the semiconductor industry boom falters and corporate taxes decrease, the money flowing into the fund will also disappear.
The concern is whether the "fiscal reservoir" might dry up after continuously pumping water during a drought.
The government explains that there are no issues with sustainability because the system was designed under the premise of a 3 to 5-year business cycle.
The Ministry of Budget and Planning stated, "It is structured to accumulate during booms and utilize the fiscal stabilization function when tax revenues fall short of the trend value. Even if the industrial structure changes in 3 to 5 years, it is set up to accumulate again."
The reason why the 10-year average annual growth rate was used as the trend value criterion is "because capturing a 10-year period reflects both the booms and busts of the semiconductor industry cycle in both directions."
Concerns have also been raised that the National Assembly's authority over fiscal deliberation could be weakened.
Pointings were also made that it could become the government's "pocket money."
The annual fund operation plan itself undergoes parliamentary review.
However, the concern is that because major expenditure items in the plan can be altered within a 20 to 30% range depending on their nature without submitting a revision proposal to the National Assembly, it could effectively result in the government formulating a supplementary budget without prior consent from the National Assembly.
Furthermore, some perspectives suggest that if national debt is not repaid during times of favorable tax revenue, fiscal soundness might deteriorate.
The Ministry of Budget and Planning explained, "This is a point that could be pointed out in the National Assembly, but whether to repay national debt or invest when additional tax revenue occurs is a value judgment. Situations can arise where the interest saved when paying off debt is smaller than the interest incurred when borrowing again. We will strive to operate the fund's surplus assets exceeding the national debt interest rate."
Minister Park Hong-keun rebutted, "If we invest this massive scale of resources entirely into fiscal health, a problem will arise where we must issue national debts again next year or the year after due to the gap between revenue and expenditure. At this point in time, it is the prime time to rebound the potential growth rate through strategic investments, allowing those outcomes to manifest as economic indicators and achievements, thereby creating a virtuous cycle structure that expands tax revenues and leads to new investments."
Regarding criticisms that it could escape parliamentary control, he emphasized, "Funds follow controls and procedures such as the Fund Management Act and the National Finance Act, and we cannot do as we please. Naturally, it will be executed based on parliamentary deliberation and legal grounds."
(Photo: Yonhap News)
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