President Lee Jae Myung takes questions from reporters during a press conference marking his first year in office at the Blue House in Seoul on June 8.YONHAP
Lee Sang-ryeol
The author is a senior editorial writer at the JoongAng Ilbo.
President Lee Jae Myung made a striking remark at his first-anniversary press conference on June 8 about how to use the surge in tax revenue from the semiconductor boom: “Using it to repay national debt would be foolish.”
It was just after the June 3 local elections. Lee’s approval rating was well above 50 percent and the Kospi had broken through 8,000 and was heading toward 9,000. It was a time when the words of a powerful president could quickly become policy. Economists and public-finance scholars fell silent after his dismissal of using excess revenue to repay government bonds. That is how the 162 trillion won Future Preparedness Fund, based on the 2027 budget proposal, was born.
Yet the government’s fiscal plan contains several oddities.
First, despite abundant tax revenue, the government will borrow more. National debt is projected to increase by 106 trillion won ($77.9 billion) next year, from 1.41 quadrillion won to 1.52 quadrillion won. Few households would set aside unexpected income while taking on more debt. Academic critics therefore have a point when they ask how this differs from issuing government bonds to fill the fund.
Second is how the money will be used. Lee said the fund should identify new growth engines such as semiconductors and make long-term investments to restore potential growth. Yet the plan includes programs that could be financed through the regular budget, including 1.5 trillion won for public convenience complexes. It also contains 2.9 trillion won for a basic child allowance and 1.1 trillion won for a rural basic income, both elements of Lee’s “basic society” agenda.
Are these investments in future growth? Such programs require continuing expenditure. The semiconductor boom will eventually end. Financing permanent spending with temporary revenue is precisely the combination public-finance experts warn against. Once the boom ends, future generations inherit the burden.
Third, and strangest, only about 45 trillion won of the 162 trillion won fund is earmarked for projects next year. Another 104 trillion won or more will remain as reserve funds. Financial institutions will compete fiercely to manage that money, yet neither its management objectives nor accountability are clear. Never before has an administration been handed anything resembling such a blank-check fund.
How will the government dispel public concern that it could become the administration’s private purse? Lee has already suggested using the Future Preparedness Fund to subsidize discounts on agricultural and livestock products during holidays.
Fourth, the Constitution establishes the principle that government spending should be subject to control by the National Assembly, the people’s representative body. Yet the fund has loopholes. The more than 100 trillion won in reserves would largely escape advance parliamentary control. The government also plans to allow excess tax revenue collected beyond forecasts to flow into the fund.
To do that, it proposes amending the National Finance Act, which currently specifies uses for excess revenue, including government bond repayment. Such changes risk weakening fiscal control through law and parliament.
Fifth, the minister of budget and planning will chair the Future Preparedness Fund Management Review Committee, which will assess whether the fund is properly managed. The minister will also appoint its members. That amounts to self-review.
Years ago, Norway, enriched by the discovery of North Sea oil, placed petroleum revenue in its sovereign wealth fund, whose chief executive is a private sector professional. To this day the principal is preserved while returns are spent under strict rules and oversight.
Korea’s proposed system could hardly be more different.
The government says the fund will also serve as a fiscal stabilization mechanism and that 12.5 trillion won will reduce new bond issuance. Those safeguards deserve consideration. But with 104.4 trillion won designated as reserve assets, the central question remains whether rules governing future withdrawals are sufficiently binding and transparent.
As the fund’s structure becomes clearer, academics are speaking up. In a recent Korean Economic Association panel survey, 50 percent of respondents chose improving fiscal soundness through national debt reduction as the top priority when tax revenue substantially exceeds forecasts. Are they all “foolish”?
Paying down debt first when extra money becomes available is basic economic common sense. If the government is going to spend, it should invest in genuine growth engines rather than distribute cash. That, too, is common sense.
More people are voicing concern that a five-year administration is shaking the foundations of national finances as if its mandate were unlimited. They are not fools.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
