Future Response Fund Tied to Semiconductor Boom; Education Grants Overhauled

[Anchor]

The Local Education Finance Grants, which have automatically allocated 20 percent of domestic taxes, are being overhauled for the first time in 55 years to reflect changes in the school-age population. The government plans to create a "Future Response Fund" using the financial resources generated by this overhaul and the increased tax revenues from the semiconductor boom. While the stated goal is to heavily invest in the nation's future growth engines, some raise concerns that the fund could be turned into a slush fund for the government.

Reporter Chae Heesun has the details.

[Reporter]

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

Critics have pointed out that because 20.79 percent of domestic taxes were automatically distributed as grants, educational finances continued to expand despite a shrinking student population, leading to many unnecessary projects.

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

Under the existing method, next year's grant scale would have reached 100 trillion won, but under the new formula, it is estimated at 78.9 trillion won, a 3.3 percent increase from this year.

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

After taking the 10-year average of how quickly domestic taxes—excluding customs and local taxes—have grown, taxes collected beyond this baseline will be regarded as "additional tax revenues" and invested in four areas: youth, growth engines, regions, and educational talent.

The scale of the fund is even discussed as potentially exceeding 100 trillion won.

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

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 domestic tax revenues fall short of the trend, the fund can be pulled back into government accounts, and the operation plans of the fund can be changed by up to 20 percent of major item expenditures without parliamentary approval.

[Kim Woo-chul / Professor of Tax Accounting, University of Seoul: Even if it undergoes review by the National Assembly as a fund project, considerable discretion is granted within a 20 percent range, leading to criticism that this is an attempt to gain more freedom from parliamentary review.]

Controversy also arises over whether increased tax revenues should be used to repay national debt first.

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

(Camera Reporter: Lee Jae-young | Video Editor: Kim Jong-mi | Design: Kang Yoon-jung, Jeon Yu-geun)
※ Please note: This article was translated by AI and may contain errors.