The government said on the 13th that it held the National Fiscal Strategy Meeting and "will push to establish a future response fund as a strategic investment platform to use the large increase in tax revenue for future-oriented productive expenditure." It added, "We will deposit additional tax revenue that exceeds the long-term trend into the fund and focus investment in four areas: the younger generation, growth engines, regions, and talent."
This is the first time the government has officially released how and in what areas it will use tax revenue collected beyond expectations due to the semiconductor boom. But experts are noting criticisms such as "the very concept of additional tax revenue that exceeds the long-term trend is abstract," "it conflicts with the National Finance Act, which requires that excess tax revenue be used first for a supplementary budget, Government Bonds repayment, and so on," and "a fundamental principle of national finances could be shaken."
◇ Is tax revenue collected above the long-term trend not "excess tax revenue" but "additional tax revenue"?
As the government came to expect that more tax would be collected than previously forecast during the process of drafting next year's budget plan, it initially called this "excess tax revenue" but recently began calling it "additional tax revenue." The National Finance Act, which sets the principles of national finances, uses the term excess tax revenue but does not use the term additional tax revenue.
Earlier, senior presidential secretary for fiscal planning Ryu Deok-hyun said on the 7th, "The future response fund (to be created with additional tax revenue) should be established in the form of a special act," adding, "We will share some details through the National Fiscal Strategy Meeting."
However, even at the National Fiscal Strategy Meeting that day, no concrete details were shared about the special act for the future response fund that could be seen as an "additional tax revenue special act." The government simply used the expression "additional tax revenue that exceeds the long-term trend." A presidential official had also said on the 6th, "Additional tax revenue is the amount exceeding the long-term trend."
The problem is that this concept is abstract. While referring to a "long-term trend in tax revenue," the government has not disclosed how it determines the trend over how many years of revenue. It also did not present criteria for how much it must exceed the trend to be considered additional tax revenue, despite characterizing it as "the amount exceeding the long-term trend."
Kim Woo-cheol, a professor in the Department of Taxation at the University of Seoul, said, "The idea that the government would conceptualize a temporary increase in tax revenue with a certain term (additional tax revenue) and convert it into a fund for permanent expenditure does not align with the principles of fiscal management."
◇ Conflict with the National Finance Act, which sets targets and priority for spending excess tax revenue?
There are also criticisms that the government needs to first resolve conflicts with the National Finance Act if it intends to deposit additional tax revenue into the future response fund and invest in four areas: the younger generation, growth engines, regions, and talent.
Article 90 of the National Finance Act stipulates that when a surplus arises from excess tax revenue expected for the year, it must be spent in the order of settling the grant-in-aid (non-earmarked tax) and grant-in-aid (earmarked tax) for educational finance, repayment of public funds, and repayment of Government Bonds. Accordingly, during the semiconductor booms of the 1990s and 2000s, the government used excess tax revenue for settling grants, repaying Government Bonds, and drafting a supplementary budget.
It is reported that the government is reviewing a plan to insert an exception clause in the special act for the future response fund stating that "notwithstanding the National Finance Act, additional tax revenue may be allocated to the fund." A legal professional said, "Even if such a clause is included in a special act, a problem arises in retroactively reclassifying resources that would already be categorized as excess tax revenue under the National Finance Act into additional tax revenue and diverting them to the future response fund."
Kang Sung-jin, a professor in the Department of Economics at Korea University, said, "Past governments have generally tried to comply with Article 90 of the National Finance Act," adding, "Since the Moon Jae-in administration, it has not been followed, and now they are proposing to create a law that does not follow it at all."
In political circles, some say "the government may not disclose concrete details until the special act bill is submitted to the National Assembly to avoid controversy related to additional tax revenue."
A researcher at a state-run think tank said, "After criticism emerged that it conflicts with the National Finance Act, they laid the groundwork by changing the term from excess tax revenue to additional tax revenue and may be seeking to create an exception clause in the special act."