ED 'Future response fund' should be sustainable
President Lee Jae Myung speaks at the government financial strategy meeting held at Cheong Wa Dae in Seoul, Monday, where he announced the creation of the "future response fund," with additional tax revenues expected to be within the 100 trillion won range for 2027. Yonhap
Lee's plans focus on youth, regional balance, megaprojects
The government will establish a "future response fund" using the additional tax revenue expected from the booming semiconductor industry. During a government fiscal strategy meeting, President Lee Jae Myung said that the excess tax revenue in 2027 will likely be "unprecedented," detailing the administration's earlier plans of using this to fund the nation's future growth.
"Large-scale additional tax revenue will be used as strategic financial resources to prepare for the future," the president said, adding that it will be used to fund policies to support youth, regional development and education programs.
Tax revenue for 2027 is forecast to surpass 500 trillion won ($330 billion), beyond the government's previous estimate of 412 trillion won. If that is the case, the fund will likely reach the 100 trillion won range. The fund should be carefully and sustainably distributed, without being wasted on "popular" programs or ad-hoc spending. The government's plan to pursue expenditure restructuring of about 50 trillion won so as to cut away at redundancies or ineffective spending should be seen through.
Given the aggressive global race for artificial intelligence (AI) growth and leadership, funding the country's future growth through excess tax revenue is a step in the right direction. But the government has also set an unprecedented budget of 800 trillion won for 2027, which does not alleviate worries over the administration's expansionary spending on the assumption that the chip supercycle will continue. The Bank of Korea recently forecast that the supercycle will extend into first half of next year. However, the consumer price index shows that inflation is already over 3 percent and the central bank is expected to raise the interest rate soon. These concerns must be reflected in both the national budget and the future response fund.
The president also said the government will mobilize all available resources to ensure the three megaproject initiatives announced earlier this month are carried out in a timely manner. The focus now is on ensuring that the companies participating in the initiatives stay on schedule to build the envisioned facilities, including a semiconductor hub in the southwestern region around Gwangju.
While these plans are driven by large-scale investments by Korean firms, the government plays a critical role in ensuring land, electricity and water supplies, making the administration's financial strategies — already roughly laid out for 2027 — crucial to the success of the initiative. It is imperative that the government be specific about how the fund will be established and distributed in the coming months.
In creating the fund, the president reaffirmed the government's goal of ensuring that the growth and gains from the AI era are shared by all.
Overall, the future response fund is yet another bold initiative for Lee's administrative goal of making Korea irreplaceable in the AI-led economic paradigm.
The administration has particularly been successful in launching ambitious plans aimed at making Korea one of the world's top three AI powerhouses — from seeking to mitigate the "Korean discount" in the valuation of Korean stocks to unveiling flagship megaprojects. However, it is vital the firm political will announces these declaratory initiatives does not fizzle out, with the administration moving onto the next initiative or plan.
Lee is still in the early days of his five-year term, and a more detailed blueprint is surely on its way to explain the government's megaprojects and future response fund. The task of creating policies to support the country's future growth and the younger generations by searching for new growth engines, pursuing balanced national development and investing in education is a long-term process. Because of their importance, it is essential that government initiatives should be matched with definitive and detailed action plans.