Projection based on fiscal plan warns extra revenue is a temporary source; government bond repayment should run in parallel
Nearly half of fund's project spending recurs annually, risking entrenched outlays after revenue slows
Expanded fiscal spending may push up prices and interest rates, adding burden on vulnerable groups
A National Assembly agency has projected that the "additional tax revenue" underpinning the government's proposed Future Response Fund will dry up after 2029.
The agency also warned that projects requiring continuous funding could deepen fiscal strain when revenues eventually decline, and advised the government to prepare for the possibility that next year's record-sized budget could stoke inflation and push up interest rates, making life harder for vulnerable groups.
The National Assembly Budget Office, known as NABO, said Sunday in its "Comprehensive Analysis of the 2027 Budget Bill" that "after 2029, the trend value of domestic tax revenue is projected to exceed the domestic tax forecast, meaning no additional tax revenue will be generated for use as a funding source for the Future Response Fund."
The conclusion holds regardless of whether the calculation is based on the tax revenue projections in the government's "2026–2030 National Fiscal Management Plan" submitted to the National Assembly or on NABO's own independent analysis — under either scenario, the trend value surpasses the domestic tax forecast from 2029 onward, leaving no surplus to qualify as additional revenue.
The bill establishing and governing the Future Response Fund defines additional tax revenue as tax receipts exceeding the long-term trend value of tax intake, and designates such revenue as one of the fund's financing sources.
Based on the national fiscal management plan, NABO estimated that additional tax revenue of 57.3 trillion won ($42.9 billion) would be generated in 2028, after which no further additional revenue would arise from 2029 onward.
The trend value used to determine additional tax revenue is set by domestic tax performance two fiscal years prior and the rate of growth at that time, meaning that if domestic tax growth stagnates or turns negative, no additional revenue is produced.
In a separate report — "NABO Forecast of National Tax Revenue for 2027: 2026–2030" — the office observed that "additional tax revenue is closer to a temporary source concentrated in 2027 and 2028 than a sustained one," adding that "after 2029, the Future Response Fund may have to rely on supplementary financing sources without any accumulation from additional tax revenue."
NABO noted that the period when no additional tax revenue is generated could coincide with a slowdown or decline in revenue — precisely when fund disbursements for fiscal stabilization purposes would be most needed. NABO advised the government to "draw up an operational plan for the fund's own projects that accounts for the structural limitations of additional tax revenue as a financing source."
However, the fund can also draw on surplus tax revenue, remaining fiscal year-end surpluses and reserve fund investment returns — meaning that even accepting NABO's analysis, it is difficult to judge the fund's viability on additional tax revenue alone.
NABO estimated that if an annual average return of 4 percent is applied to the 75 trillion won in average annual assets under delegated management — the figure the government used when calculating the 22.5 billion won fund management fee — investment returns on reserve funds would amount to around 3 trillion won.
The government has not publicly specified how long the Future Response Fund is intended to last.
Ministry of Planning and Budget Minister Park Hong-keun indicated in August, in an appearance on the YouTube channel "Kim Eou-joon's Humility Is Hard News Factory," that whether the fund runs dry "depends on how much funding continues to be secured," and that while the outcome could hinge on the semiconductor cycle, the government expects financing to be in place at least through 2028.
NABO examined three possible uses for the unexpectedly large tax windfall generated by the semiconductor boom — government bond repayment and national debt management, future investment, and fiscal stabilization reserves as a safety net — and concluded that a meaningful share of the revenue should also go toward retiring government bonds.
"Reducing rapidly accumulated debt during a period of strong tax revenue is consistent with the intent of the National Finance Act," NABO said, "so it is necessary to carry out government bond repayment at an appropriate scale in parallel, within a range that does not destabilize the market."
The office's position is that while using all additional tax revenue to pay down debt would excessively shrink bond issuance volumes, squeeze market liquidity and amplify market shocks if large-scale issuance later becomes unavoidable, some level of bond repayment remains necessary.
NABO suggested that "the repayment scale should be set in stages, taking into account the annual maturity profile and market conditions, and at minimum the statutory level that would have been directed to debt repayment had the funds gone through the existing fiscal year-end surplus procedures — at least 51 percent of the balance after settlement — could serve as one benchmark."
The government has already used surplus tax revenue to cut planned government bond issuance last month by 5 trillion won.
Park said at the National Assembly Finance and Economy Planning Committee's national audit on Oct. 8 that the government would "consult with related ministries on the overall situation going forward — whether to use the surplus to further reduce bond issuance, put it into other funds later, or take some other approach" — signaling openness to directing the additional revenue toward debt management.
A range of views is expected to emerge both inside and outside the government on what the appropriate level of repayment should be.
On the question of using large-scale tax revenue for future investment — expanding growth engines, building human capital, and nurturing new industries and strategic technology — NABO cautioned that "while future investment can broaden the medium- and long-term tax base, using temporary revenue to expand ongoing projects risks entrenching spending requirements even after revenue growth slows."
About half of the Future Response Fund's project spending consists of "outlays that are difficult to reduce once budgeted," NABO said, citing examples such as the universal child allowance, whose pool of recipients grows each year, and the Youth Future Savings Account, which requires contribution payments until maturity even if new enrollment is halted.
Spending of this recurring nature was tallied at 21.2 trillion won, or 46.7 percent of the 45.36 trillion won in project costs across the four major project accounts.
On fiscal stabilization reserves — funds set aside as a safety net for when revenues fall after a temporary boom — NABO assessed that while such reserves "enable rapid response in a crisis as a buffer, there is a risk that accumulated funds could sit idle for extended periods or be used outside the oversight of the National Assembly."
Taking all of this into account, NABO added that rather than choosing any single option among the three, the government should consider a balanced allocation suited to the nature of each funding source.
NABO compared the Future Response Fund with Norway's Government Pension Fund Global, Ireland's Future Ireland Fund, Chile's Economic and Social Stabilization Fund and the Virginia Revenue Stabilization Fund in the United States, and concluded that the Korean fund "stands apart from major overseas funds in that it combines fiscal stabilization and future investment functions while directly carrying out general fiscal projects through multiple project accounts, without specific principles governing accumulation and withdrawal or criteria controlling transfers to project accounts."
On the fund overall, NABO acknowledged that "the government's intention to accumulate and manage a separate pool of resources for future investment is recognized as valid in principle," but added that "concerns are also being raised that the fund's operation could weaken the National Assembly's fiscal oversight, expand the government's discretion in fiscal management, and forfeit opportunities to improve fiscal soundness through measures such as national debt repayment."
NABO said that "given current economic conditions, there is a possibility that expanded fiscal spending in 2027 could increase aggregate demand and, through channels such as price instability and rising interest rates, add to the burden on vulnerable households and businesses — and response measures to address this need to be considered."
The government has drawn up next year's budget at a record total expenditure of 820.9 trillion won, up 67.9 trillion won, or 9.0 percent, from the current year on a supplementary budget basis.
NABO noted that the budget "exceeds the 2020–2027 annual average growth rate of 5.9 percent by 3.1 percentage points" and expressed concern that the fiscal expansion could push up prices and interest rates, raise interest costs or erode real purchasing power, compounding difficulties for vulnerable groups.
NABO recommended in particular that the government "consider the possibility that a tight monetary policy stance may continue for some time" and "refine the spending structure and execution plan to reduce the economic burden on vulnerable sectors."
The government has not denied that fiscal expansion could add upward pressure on prices, but has said it is working to minimize any side effects.
oskymoon@heraldcorp.com
