The extra tax revenue earmarked for the government's planned Future Response Fund could fall by more than 100 trillion won ($70 billion) in 2028, according to an analysis that calls for revising a formula now driven by a single year's tax collection.
Kim Hyun-a, head of the fiscal research division at the Korea Institute of Public Finance, presented the analysis on the 22nd at a policy symposium on the Future Response Fund co-hosted by the institute and Rep. Oh Ki-hyoung of the ruling Democratic Party of Korea. Under the current trend formula, the extra revenue that would finance the fund is estimated to plunge to 61.7 trillion won in 2028 from 162.3 trillion won in 2027, a drop of 100.6 trillion won.
Under the government's proposal, the fund would accumulate the amount by which budgeted domestic tax revenue exceeds a baseline reflecting the growth trend of the past 10 years. The current formula uses the settled domestic tax figure for a single year two years earlier. When revenue surges during a boom, the baseline rises accordingly. That means the fund's resources can shrink sharply even as actual revenue grows.
Kim proposed an alternative that averages settled figures over the most recent three years and adjusts them using the economic growth rate. Under that model, extra revenue in 2028 is estimated at 119.4 trillion won, or 57.7 trillion won more than under the current method. The aim is to narrow swings tied to a single year's performance and make accumulation more stable.
The symposium also produced specific estimates of the fiscal benefits of introducing the fund. Kim Jung-hoon, head of the Fiscal Policy Research Institute, said managing idle funds and reducing government bond issuance after the fund's launch could generate an additional 1.2 trillion to 1.8 trillion won in benefits a year. The estimate assumes a return on investment of 3.5% to 3.85%.
Others cautioned against expanding long-term spending programs on the back of a temporary revenue windfall. Kim Nam-jong, head of the capital markets research office at the Korea Institute of Finance, said, "If temporary windfall revenue is channeled into projects that require spending over a long period, operating and maintenance costs could become a burden on future generations." Kim added, "We need to compare the economic effects of accumulating the fund against repaying government bonds, and to establish an independent risk management system."
Calls were also made to strengthen parliamentary control over spending. Kim Bong-hwan, a professor at the Graduate School of Public Administration at Seoul National University, said, "Given the broad scope of the projects, overlap with existing budget programs must be minimized." The professor specifically proposed lowering the threshold for changing the spending plan of the project account without a National Assembly vote to 20% from the 30% in the government's proposal, the same level applied to other project-based funds.
In congratulatory remarks the same day, Cho Yong-beom, vice minister of planning and budget, explained that the fund is intended to channel revenue boosted by the semiconductor boom into long-term growth, adding, "We will design and operate it in a more refined and transparent manner."