Gov't to channel semiconductor tax windfall into Future Fund

The government is set to establish the “Future Fund,” channeling additional and excess tax revenue generated by the semiconductor boom into long-term investments aimed at strengthening the economy, officials said Friday.

The fund, estimated to reach at least 100 trillion won ($72.3 billion), will target four priority areas — supporting young people, developing new growth engines, promoting regional development and nurturing education and talent.

The move will also overhaul the way the government allocates funding to education offices and local governments. Both local education grants and local government grants have traditionally been tied to national tax revenue. Under the new framework, however, money will first be set aside for the Future Fund, with both grants calculated under revised formulas.

“The fund is intended to support strategic investments aimed at boosting Korea’s potential growth rate while helping stabilize public finances against fluctuations in tax revenue,” Budget Minister Park Hong-geun said during a press briefing attended by Education Minister Choi Kyo-jin.

The government plans to leverage the fund to support young adults facing challenges related to jobs, housing and starting families, while making bold investments in seven key sectors, including artificial intelligence and biotech. The initiative also aims to promote regional development and attract top global talent to strengthen the country’s technological competitiveness.

The fund will be financed by surplus tax revenue and a newly introduced additional tax revenue mechanism.

Surplus tax revenue refers to tax receipts that exceed the amount projected in the government’s initial budget. The government is expected to collect tens of trillions of won in surplus tax revenue this year, some of which will be allocated to the Future Fund.

The additional tax revenue mechanism covers tax receipts projected to exceed their long-term growth trend. Under the proposed framework, the benchmark will be based on the average annual growth rate of national tax revenue over the past decade.

Any projected revenue above that benchmark would be transferred to the Future Fund rather than immediately spent through the general budget. If revenue later falls below the benchmark, the government could draw on the fund and transfer money back to the general account, allowing the fund to serve as a buffer against fiscal volatility.

The Future Fund will take effect with next year’s budget if approved by the National Assembly. Market estimates suggest its total size could exceed 100 trillion won. The Ministry of Planning and Budget has yet to disclose an official figure, which will be formally unveiled when the draft budget is submitted to the Assembly early next month.

Along with establishing the Future Fund, the government plans to reform local education grants and local government grants, moving away from decades-old formulas tied directly to domestic tax revenue.

The current local education grant system automatically allocates 20.79 percent of annual domestic tax revenue to local education offices for elementary, middle and high school education. The practice, which has been in place since 1972, will be scrapped under the reform measures. Instead, funding will be calculated based on nominal economic growth and changes in the school-age population, with a mechanism in place to ensure that total grants do not decline year over year.

Local government grants, meanwhile, will retain their 19.24 percent link to domestic tax revenue, but the tax base used to calculate the grants will exclude revenue set aside for the new fund.

Savings from the overhaul will be channeled into an education and talent account within the Future Fund, allowing funding traditionally earmarked for kindergartens, elementary, middle and high schools and special education to be redirected to other areas, including early childhood, higher and lifelong education.

Meanwhile, regional education superintendents and civic advocacy groups are pushing back against the plan to overhaul the local education grant system, demanding that the fixed 20.79 percent allocation from domestic tax revenue be maintained.

In response, Minister Park firmly dismissed concerns over potential education spending cuts, saying, “There will be absolutely no reduction in the education budget for our children.”