Korea to launch 'future fund' with 'windfall revenue' amid chip boom

Korea will launch the "Future Fund" to promote long-term economic growth, using what the government calls "windfall revenue" from increased tax collection driven by the recent artificial intelligence (AI) boom, the budget ministry said Friday.

The Ministry of Planning and Budget unveiled the plan in partnership with relevant government agencies, saying the AI industry has sparked a major transition across various areas, from the economy to social systems, beyond just a technological revolution.

"Amid the global chip boom, domestic tax revenue is expected to rise sharply, driven by an increase in corporate tax revenue," the budget ministry said.

"We need to use the fiscal capacity secured under the current circumstances as valuable ammunition to take the lead in the global competition for technological supremacy," it added.

The budget ministry introduced the concept of "windfall revenue," referring to tax revenue exceeding its long-term trend due to structural economic changes or significant economic fluctuations, such as an industrial supercycle.

The government said the concept differs from surplus tax revenue, which refers to tax receipts exceeding official forecasts due to unexpected short-term economic fluctuations or forecasting errors.

The windfall revenue will be used to finance the Future Fund, while surplus revenue will be used to fund supplementary budgets, repay government debt or make contributions to the fund.

The budget ministry said the fund will serve as a strategic investment platform aimed at boosting the country's potential economic growth.

"Investment will focus on key areas needed to raise the country's potential growth rate, including youth, growth engines, regional economies and education," the budget ministry said.

In detail, the fund will support young people at different stages of their lives, covering areas ranging from employment and housing to marriage and childbirth.

It will also support the government's three megaprojects initiative, centered on fostering the AI industry and related areas, such as physical AI, along with the so-called seven future-oriented sectors.

The seven sectors are small modular reactors (SMRs), nuclear fusion, renewable energy, quantum technology, aerospace, advanced biology, and supply chains for advanced materials and components.

The fund will also serve as a platform for fiscal stability, contributing to greater stability and efficiency in the country's budget management, the ministry said.

Korea, meanwhile, will also overhaul its education budget allocation mechanism to better reflect the country's dwindling student population while bolstering higher education.

The proposal by the budget ministry will significantly change the current system, under which the government automatically allocates 20.79 percent of internal tax revenue, along with a portion of education tax revenue, to grants for local education offices.

According to the government, the number of people aged between three and 17 fell sharply from 8.8 million in 2010 to 5.91 million in 2025, highlighting the need to readjust the education funding mechanism linked to internal tax revenue, which has generally increased despite the demographic decline.

"The linkage to internal tax revenue makes it difficult for the government to manage its finances flexibly at the national level, while sharp fluctuations in internal taxes, including corporate tax, have increased volatility in education grants," it said.

Accordingly, the budget ministry proposed a new calculation formula reflecting the previous year's grant amount, the three-year average nominal economic growth rate and demographic changes.

The government will ensure the total amount of grants does not fall below the previous year's level, it added.

The proposal, meanwhile, will be reviewed by the Cabinet on Sept. 1 and submitted to the National Assembly on Sept. 3.