Future fund needs tighter spending controls

A semiconductor boom is generating more tax revenue than expected, potentially pushing the Future Response Fund, set to launch next year, above 200 trillion won. That would make the new fund roughly one-quarter the size of the government’s proposed 820 trillion won budget for next year. Its sheer size is raising concerns that the government could gain access to a large pool of money with relatively few restrictions on how it is spent.

The fund is intended to set aside tax revenue from temporary economic booms rather than spend it all at once, preserving the money for future needs. The government says it will use the fund for strategic investments aimed at boosting potential economic growth and stabilizing public finances by cushioning fluctuations in tax revenue. Last month, it submitted a bill to establish the fund and set out how it would be financed.

But the central question is how a fund of that size should be used. Under the National Finance Act, the government can revise spending from nonfinancial funds without National Assembly approval, as long as the changes stay within 20% of total expenditures. For the Future Response Fund, that ceiling would rise to 30%. The higher limit would give the government significantly more leeway to alter spending plans and tap the fund without seeking further approval from the National Assembly. There is no clear justification for giving the new fund a special exemption that would weaken National Assembly oversight of public spending.

The government says it plans to spend 45 trillion won from the fund next year on young people, growth industries, regional development, education and talent development. But many of these programs are already funded through the regular budget or other funds, including the Advanced and Strategic Industries Fund and the Regional Extinction Response Fund. Critics also point to the large share of cash payments, saying such spending does not fit well with the government’s stated goal of making strategic investments to boost potential growth.

The National Finance Act requires the government to include all revenue and spending in the national budget. The rule is designed to prevent the government from freely spending money that has not gone through National Assembly review. Against that principle, there is little justification for moving existing programs into a new fund subject to less National Assembly scrutiny. The fund is also intended to serve as a fiscal reservoir, helping smooth fluctuations in tax revenue. Weakening National Assembly oversight could increase the risk that the fund is depleted when tax receipts fall.

Resource-rich countries have long set aside proceeds from oil and other natural resources to prepare for the day those resources run out. They also impose strict rules on withdrawals and fund management to protect money reserved for future generations. If the Future Response Fund is truly meant to serve future generations, the National Assembly should ensure that its rules impose firm limits on when and how the money can be withdrawn and spent.