Semiconductor Boom Triggers 'Future Response Fund' and Education Subsidy Overhaul

[Anchor]

The local education finance grant, which has been automatically allocated 20 percent of internal tax revenues, is being overhauled for the first time in 55 years to reflect changes in the school-age population. The government has decided to create a "Future Response Fund" using financial resources generated by this reform and tax revenues increased by the semiconductor boom. While the intent is to make focused investments in the nation's future growth engines, some concerns are rising that the fund could turn into a slush fund for the government.

Reporter Chae Heesun has the report.

[Reporter]

The system linking local education finance grants to internal taxes, introduced in 1972, will be abolished starting next year.

Because 20.79 percent of internal taxes were automatically allocated as grants, criticisms have been raised that education funding continued to grow even as the number of students decreased, leading to unnecessary projects.

Moving forward, grants will be calculated by reflecting the average current economic growth rate over the past three years and changes in the school-age population.

Under the new formula, next year's grant size—which would have reached 100 trillion won under the previous method—is estimated at 78.9 trillion won, a 3.3 percent increase from this year.

The government plans to create the Future Response Fund using the difference in grants secured through the institutional reform and "additional tax revenues" generated by the semiconductor boom.

By taking a 10-year average of how quickly internal taxes—excluding tariffs and local taxes—have grown, any tax revenue collected in excess of this average will be regarded as "additional tax revenue" and invested in four areas: youth, growth engines, regional development, and educational talent.

The size of the fund is even projected to exceed 100 trillion won.

[Park Hong-keun / Minister of Planning and Budget: We intend to use it as a strategic investment platform that supports the rebound of potential growth rates and as a fiscal stabilization device to mitigate volatility in tax revenues.]

While the government explains that the fund is necessary for swift and long-term investments, concerns remain that it could be used like a government slush fund.

This is because if internal tax revenues fall short of trends, the fund can be pulled back into government accounts, and up to 20 percent of expenditures for major items within the fund can have their operational plans changed without parliamentary approval.

[Kim Woo-chul / Professor of Taxations, University of Seoul: Even if reviewed by the National Assembly as a fund project, considerable discretion is granted within the 20 percent range, leading to criticisms that it aims to bypass parliamentary review to some extent.]

Controversy also surrounds whether the increased tax revenues should be used to repay national debt first.

How specifically to define the fund's usages and operating principles, as well as how to manage the backlash from the education sector due to the reduction of education grants, are expected to become major issues in the upcoming legislative process.

(Reported by Lee Jae-young | Video by Kim Jong-mi | Graphics by Kang Yoon-jung and Jeon Yu-keun)
※ Please note: This article was translated by AI and may contain errors.