45 trillion won for future investment, 104 trillion won held as reserve
Government bond issuance cut by 12.5 trillion won to cushion bond market
Tax exemptions to top 100 trillion won for first time, with large firms taking half
A semiconductor-driven tax windfall has prompted the government to set aside 162.3 trillion won ($118 billion) in a separate "future response fund," to be managed outside the general budget. The plan calls for using domestic tax revenues that exceed the trend of the past decade — partly for forward-looking investment and largely as a reserve against future revenue shortfalls.
Under the 2027 budget proposal approved by the Cabinet on Tuesday, the fund is projected to take in 162.3 trillion won next year.
![An employee checks 50,000-won banknotes at Hana Bank's counterfeit response center in Jung-gu, Seoul. [Newsis]](https://wimg.heraldcorp.com/news/cms/2026/09/01/news-p.v1.20260901.c767b994f8804439b6d23ef029f3eeae_P1.jpg)
The government will calculate a trend figure by applying the 10-year average annual growth rate of domestic tax revenue — 6.2 percent — to the 2025 final domestic tax settlement, then channel any amount above that trend into the fund. Revenues freed up by restructuring the local education finance grant formula that fall below the 10-year trend line will be placed separately into an education and talent account.
The future response fund is divided into four project accounts — youth, growth engines, regional development, and education and talent — plus an overall account. Of the total, 45.4 trillion won will be deployed across those four areas.
The youth account covers programs including first-job support for young people, startup commercialization, universal public rental housing, a youth savings scheme, and a three-part package of marriage, childbirth and child-rearing support. The growth-engine account includes frontier-level AI development, an "AI for All" initiative, an autonomous-driving demonstration city, next-generation launch vehicle development and other strategic technology projects, as well as equity investment to stabilize supply chains and infrastructure support for the power and water needs of the semiconductor industry.
Key projects under the regional development account include a regional future growth fund, support for the administrative integration of South Jeolla Province and Gwangju, and assistance for building five-star hotels in regional cities. The education and talent account encompasses new programs such as full scholarships at regional national universities, an internship-semester system and a future talent development fund, along with existing science and engineering scholarships and support for AI-focused universities.
Of the overall account, 12.5 trillion won will be used to reduce new government bond issuance. The remaining 104.4 trillion won will be managed as a reserve — 96.9 trillion won in the overall account, 5 trillion won in the regional development account and 2.5 trillion won in the education and talent account.
The government's decision to leave a large portion of the additional revenue unspent reflects its aim to avoid two pitfalls at once: a sharp surge in expenditure and the market disruption that would come from sharply cutting bond issuance. By the government's own estimates, spending all 104.4 trillion won through the general account rather than holding it in reserve would push next year's total expenditure growth above 27 percent.
Conversely, using most of the extra revenue to pay down national debt would cause government bond issuance to fall sharply from 221.8 trillion won to the 100 trillion won range, which the government judged could strain the bond market. Planning Minister Park Hong-keun said at a pre-release briefing that the future response fund is "a strategic investment platform for channeling large-scale tax revenues into productive spending, and a fiscal stabilization mechanism that improves the efficiency of fiscal management."
Because revenues absorbed into the general account are difficult to accumulate and deploy over the long term under the single-year budget framework, the government plans to build up reserves in the separate fund to manage revenue fluctuations. Officials said that if unexpected fiscal demands or a revenue shortfall arise during the year, the fund's management plan can be revised within legally prescribed limits to provide rapid fiscal reinforcement.
However, concerns have been raised that the fund's flexible management could give the government excessive fiscal discretion. Critics note that because revenue shortfalls can be addressed by revising the fund management plan, the National Assembly's ability to exercise prior oversight may be weakened. There is also criticism that including existing ongoing programs alongside new ones in the fund dilutes its stated purpose as a vehicle for future investment.
In response, the planning ministry said it has strengthened ex-post oversight beyond what applies to ordinary funds by requiring that any revision to the fund management plan be reported to the National Assembly without delay. On the inclusion of ongoing programs, the ministry said projects were selected based on the need to address future challenges rather than on whether they were new or continuing, adding that marriage and childbirth support also qualifies as future investment aimed at countering the low birth rate and aging population.
The revenue surge that makes a future response fund of more than 160 trillion won possible is driven primarily by corporate tax. National tax revenue next year is projected at 584.4 trillion won, up 168.9 trillion won, or 40.7 percent, from the 415.4 trillion won in this year's supplementary budget. Corporate tax alone is forecast to jump 115.4 trillion won, or 113.9 percent, to 216.7 trillion won, largely on the back of sharply higher operating profits at chipmakers.
Income tax is projected to rise 43.2 trillion won from this year to 180 trillion won. Within that, wage income tax is expected to climb 29.2 trillion won to 102.4 trillion won, driven by wage growth and expanded special performance bonuses at semiconductor companies, while dividend income tax is forecast to increase 8.5 trillion won to 13.2 trillion won on improved corporate earnings and broader shareholder returns. Value-added tax is estimated to grow 4.8 trillion won to 91.4 trillion won, reflecting higher private consumption and imports.
The government expects national tax revenue to maintain steady growth beyond 2027, supported by continued strength in the semiconductor sector and a broadening economic expansion. However, it cautioned that because much of the revenue increase depends on the semiconductor cycle, a faster-than-expected slowdown in the industry could amplify volatility in tax receipts, particularly in corporate tax.
Tax exemptions are also set to expand significantly alongside rising revenues. The total value of national tax exemptions is projected to grow 17.9 trillion won from 87 trillion won this year to 104.9 trillion won next year, surpassing 100 trillion won for the first time. The exemption rate, however, is expected to fall from 16.3 percent this year to 14.5 percent next year — below the statutory ceiling of 16.6 percent — as the increase in tax revenue outpaces the growth in exemptions.
Corporate tax exemptions are projected at 49.2 trillion won, of which 24.6 trillion won will go to large conglomerates subject to cross-shareholding restrictions. Large firms' share of corporate exemptions is set to rise 19.1 percentage points, from 30.8 percent this year to 49.9 percent next year. The share of all companies — including small and midsize firms — in total national tax exemptions is also expected to climb from 40.3 percent to 46.9 percent over the same period.
The rise in large-firm exemptions is driven by improved corporate earnings and expanded investment and research and development spending amid the semiconductor boom. Tax credits for large-firm investment and R&D are projected to increase 13.7 trillion won, from 10 trillion won this year to 23.7 trillion won next year.
y2k@heraldcorp.com
