More than 95% of the spending programs under South Korea's Future Response Fund were approved as requested by government ministries or given larger budgets, a review has found. Of the 131 programs in total, only six were cut during deliberations by the Ministry of Planning and Budget. Programs left unchanged include welfare spending that requires fiscal outlays every year, such as the basic child allowance at 2.93 trillion won ($2.1 billion) and basic income for farming and fishing villages at 1.17 trillion won ($841 million). The Ministry of Education's program to strengthen industry-academia-research cooperation was budgeted at 551.9 billion won ($397 million), roughly double what the ministry had requested, while scholarships for balanced regional development rose to 328 billion won ($236 million) from 285.4 billion won. Some critics contend the fund is being used to cover a shortfall created by the overhaul of local education subsidies.
The government's excess tax revenue this year is projected to top 60 trillion won ($43.1 billion). Combined with the 162.3 trillion won ($116.7 billion) allocated for next year, the Future Response Fund's resources will exceed 222 trillion won ($159.6 billion). Corporate tax receipts have surged on improved earnings at semiconductor companies, and revenue tied to a buoyant stock market is also running above forecasts. The problem is that while the money is piling up, the rules governing how it is set aside and spent remain loose. That is why disputes over whether individual programs belong in the fund keep resurfacing. After allowing up to 30% of major spending items to be changed without parliamentary review, the government is now pushing for an exception that would let program funds in the local account be carried over for as long as three years. It would permit carryovers where there are unavoidable reasons, yet the mechanism for verifying those reasons is inadequate. In effect, water is being poured into what has been called a fiscal reservoir without proper floodgates to control the outflow.
The Future Response Fund is meant to invest in national growth engines such as artificial intelligence and advanced semiconductors, and to cushion swings in tax revenue. How it is managed will affect both the potential growth rate and fiscal soundness. To dispel criticism that the government is stockpiling a huge fund while issuing treasury bonds, and concerns that its stabilizing function is weak, the authorities must make management more transparent and apply stricter standards to spending. Recurring welfare outlays should be separated from investment in future growth, and the performance of each program should be assessed. Local projects, too, should be ones that broaden a region's growth base rather than products of political compromise. In follow-up legislation, the National Assembly must clearly define the conditions for putting money into and drawing it out of the fund, along with the scope of permissible spending changes. Only then can the country shed worries that the fund is a slush fund for the administration and pass on to future generations both a platform for growth and fiscal capacity.
