The government said on the 21st that it will scrape together the higher-than-expected tax revenue to create a "future response fund" next year. Until now, the government has used excess tax revenue to repay Government Bonds or to draft a supplementary budget. Instead of spending the money in a short period, it will put it into a fund and then invest in future growth engines such as youth and regional areas.
The Ministry of Planning and Budget said, "Creating a fund rather than doing a supplementary budget allows quick responses to unpredictable policy demands that arise during the fiscal year." A supplementary budget requires National Assembly review, but for a fund, up to 20% of expenditures by major project can be adjusted through discussions within the government. Experts are voicing concerns, calling it "a government emergency account that enables supplementary budget–level fiscal expenditure without National Assembly review," and "a move that effectively neutralizes the debt repayment rules under the National Finance Act."
◇ Excess tax revenue strictly limited in use if a supplementary budget is not done
Each year the government drafts a budget bill based on forecasts of next year's national tax revenue. The national tax revenue forecast is said to be made by comprehensively considering macroeconomic indicators such as gross domestic product (GDP) and exports, asset market trends, and changes in tax base by tax item. The government calls tax revenue that exceeds expectations "excess tax revenue," and has mainly used it to draft a supplementary budget in that year.
This year's semiconductor boom is said to make it likely that excess tax revenue will reach tens of trillions of won. The same goes for next year. Under the current system, if excess tax revenue is not used to draft a supplementary budget in that year, it becomes "surplus funds (the settlement-of-account surplus minus carryovers)." Under the National Finance Act, surplus funds must be used in the order of grants settlement, contributions to the Public Fund Repayment Fund, government debt repayment, and drafting a supplementary budget. This leaves little money that the central government can use at its own initiative.
◇ "Future response fund is a government emergency account that needs to watch the National Assembly less"
According to the Ministry of Planning and Budget, the financing source for the future response fund is the increase in national tax that comes in at a scale surpassing the trend of the past 10 years. For example, if the most recent national tax settlement of account was 100 trillion won, applying the 10-year average annual growth rate of about 6%–7% would set the benchmark at 106 trillion–107 trillion won. The structure is that the general account will transfer to the future response fund an amount equal to the difference between the government's projected national tax revenue for next year and 106 trillion won.
Also, when the government re-forecasts tax revenue for the year in September and there is more tax revenue than initially expected, that will also go into the fund. In addition, the plan is to allow any money remaining after using surplus funds, as required by the National Finance Act, for grants settlement, contributions to the Public Fund Repayment Fund, and Government Bonds repayment to be put into the fund. A research fellow at a private think tank said, "This creates an emergency account that the government can draw from immediately with less need to watch the National Assembly," adding, "It effectively allows supplementary budgets on a standing basis."
◇ Funding source for Government Bonds repayment, "surplus funds," expected to decrease... "Pay down debt when the economy is good"
If the future response fund is created as the government proposes, surplus funds used to repay Government Bonds could decrease significantly. Last year, Korea's central government debt was 1,268.1 trillion won, up 127 trillion won from the previous year. The outstanding balance of treasury bond issuance increased by 113.5 trillion won, accounting for most of the rise. As a result, per capita government debt is estimated at about 25.24 million won.
Heo Jeong, a professor in the department of economics at Sogang University, said, "When the economy is good, the size of national debt looks relatively small, but paying it down at such times is the government's role." He added, "This administration's expansionary fiscal policy is excessive, and when the economy worsens, national debt can become an ammunition depot."