At a forum on the future response fund hosted by Democratic Party of Korea lawmakers, criticism emerged that reflecting excess tax revenue in the fund is "giving an incentive for revenue-forecasting failures." The point was that putting a large amount of excess tax revenue into a separate fund would amount to ignoring the existing national system.
Democratic Party lawmakers Yun Hu-deok, Lee Gwang-jae, Jeong Tae-ho, and Ahn Do-geol held a forum at the National Assembly Members' Office Building on the afternoon of the 27th under the theme "Excess tax revenue: strategic fiscal allocation and utilization plans for the future."
At the forum, Park Seong-hun, head of the Future Response Fund Task Force at the Ministry of Planning and Budget, attended, and discussions mainly revolved around excess tax revenue from the semiconductor boom and the creation of the future response fund. However, Democratic Party lawmakers could not attend due to participation in a training session.
Park Myeong-ho, a professor in the Department of Economics at Hongik University who delivered the keynote presentation, argued that excess tax revenue should be used along two axes: a future growth base fund and a future fiscal stabilization fund. The idea is to support high-tech industries such as semiconductors with excess tax revenue and create a mechanism that can mitigate fiscal shocks when they occur.
Professor Park said, "Semiconductors are a business based on innovation, and the volatility is just as high. If the technology trend changes, infrastructure worth trillions of won can become obsolete in an instant," adding, "Korea is in a situation where it must nurture the semiconductor ecosystem in a healthy way while at the same time preparing for future fiscal risks."
He continued, "The issue is not 'how much excess tax revenue there is, but how long it lasts.' It is very risky to design expenditure on the assumption that such revenue increases are permanent," adding, "We need to establish management principles for excess tax revenue, reduce welfare-type and rigid expenditure, invest in necessary infrastructure, and respond to future fiscal crises."
In particular, the discussants agreed that the size of the future response fund is excessively large.
They said that excess tax revenue ultimately stems from failures in revenue forecasting, and if such excess tax revenue is converted into a fund, there could be a "possibility of intentionally creating forecasting failures."
There were also concerns that creating a large-scale fund could lead to a "fiscal firewall" with the general account, which is the basis of national finance.
Lee Sang-min, senior research fellow at the Korean Institute of Public Finance, said, "Korea already has the National Pension Service and Korea Investment Corporation (KIC), and now this proposes to create another financial asset with a future response fund," adding, "The government does not say it exactly, but by calculation the future response fund seems likely to be 150 trillion won, and the fund is too large."
He went on, "It is impossible to understand putting in not only additional tax revenue but even excess tax revenue. Excess tax revenue is, in the end, a forecasting failure," adding, "Of course it is hard to forecast, but at the very least we must not give (instead) incentives for forecasting failures. Leaving the regular troops (the general account) as is while growing the private troops (the future response fund) undermines the principle of budgeting on a gross basis."