Key Takeaways
- • The 2026 budget bill of 821 trillion won has triggered a dispute over South Korea's Future Response Fund, which the ruling party calls a "fiscal dam" and the opposition calls "pocket money."
- • The fund is projected to reach 162 trillion 294.7 billion won from additional tax revenue of 158 trillion 472 billion won and other sources of 3 trillion 822.7 billion won, and could approach or exceed 200 trillion won if excess tax revenue is transferred, which the Ministry of Economy and Finance estimated at 63 trillion 200 billion won this year.
- • The National Assembly Budget Policy Office expects no additional tax revenue after 2029, raising sustainability concerns as the government plans to spend 45 trillion 400 billion won from the fund next year.
- • The IMF and OECD have praised the fund as a buffer and a wise policy choice, while the National Assembly finance committee has called for a review of its medium- and long-term resource sustainability.
Summary
The National Assembly has begun deliberations on an 821 trillion won budget following President Lee Jae-myung's State of the Nation Address, with the Future Response Fund emerging as the main point of contention. The ruling and opposition parties characterize the fund differently, calling it a "fiscal dam" and "pocket money" respectively. Some lawmakers have argued that more excess tax revenue should be directed to the sovereign wealth fund.
International institutions have offered positive assessments. IMF Managing Director Kristalina Georgieva described the fund as a "buffer device to prepare for future changes in economic conditions" during a meeting with Deputy Prime Minister and Finance Minister Lee Hyoung-il in Bangkok. OECD Chief Economist Stefano Scarpetta called it a "wise policy choice" in a meeting with Vice Minister of Planning and Budget Cho Yong-beom in Paris. President Lee cited these views in his address, along with credit rating agency assessments.
The fund's size depends on several sources. Additional tax revenue, which is the amount by which next year's domestic tax budget exceeds the trend value of domestic taxes, makes up the majority, at 158 trillion 472 billion won. Other sources total 3 trillion 822.7 billion won. Excess tax revenue is also a source, and the Ministry of Economy and Finance projected this year's excess at 63 trillion 200 billion won in a September re-estimation, though the transfer amount has not been decided. The final size will be set during deliberations and is projected to approach or exceed 200 trillion won.
Sustainability is the central concern. The National Assembly Budget Policy Office, in its Comprehensive Analysis of the Budget Bill, expects no additional tax revenue after 2029 because the trend value is projected to exceed domestic tax forecasts. If that holds, spending could outpace revenue, and the government plans to spend 45 trillion 400 billion won from the fund next year alone. The National Assembly Committee on Finance and Economy warned in its review report that some projects may create continuous or repetitive spending that is hard to cut in the short term.
At a public hearing, Song Heon-jae, economics professor at the University of Seoul, said the fund must preserve its principal and receive steady inflows, but that this is impossible if excess and additional tax revenues cannot be predicted. He questioned whether repaying debt first and issuing government bonds when funds are needed would be preferable, and said the government has not yet provided a clear answer.
International institutions have offered positive assessments. IMF Managing Director Kristalina Georgieva described the fund as a "buffer device to prepare for future changes in economic conditions" during a meeting with Deputy Prime Minister and Finance Minister Lee Hyoung-il in Bangkok. OECD Chief Economist Stefano Scarpetta called it a "wise policy choice" in a meeting with Vice Minister of Planning and Budget Cho Yong-beom in Paris. President Lee cited these views in his address, along with credit rating agency assessments.
The fund's size depends on several sources. Additional tax revenue, which is the amount by which next year's domestic tax budget exceeds the trend value of domestic taxes, makes up the majority, at 158 trillion 472 billion won. Other sources total 3 trillion 822.7 billion won. Excess tax revenue is also a source, and the Ministry of Economy and Finance projected this year's excess at 63 trillion 200 billion won in a September re-estimation, though the transfer amount has not been decided. The final size will be set during deliberations and is projected to approach or exceed 200 trillion won.
Sustainability is the central concern. The National Assembly Budget Policy Office, in its Comprehensive Analysis of the Budget Bill, expects no additional tax revenue after 2029 because the trend value is projected to exceed domestic tax forecasts. If that holds, spending could outpace revenue, and the government plans to spend 45 trillion 400 billion won from the fund next year alone. The National Assembly Committee on Finance and Economy warned in its review report that some projects may create continuous or repetitive spending that is hard to cut in the short term.
At a public hearing, Song Heon-jae, economics professor at the University of Seoul, said the fund must preserve its principal and receive steady inflows, but that this is impossible if excess and additional tax revenues cannot be predicted. He questioned whether repaying debt first and issuing government bonds when funds are needed would be preferable, and said the government has not yet provided a clear answer.
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