(EDITORIAL from Korea Herald on Nov. 2)

Fiscal prudence

Lawmakers must scrutinize budget priorities against costs that may outlast chip revenues

Tax receipts from a semiconductor boom arrive with an expiration date. Government spending commitments rarely do.

On Friday, the National Assembly opened its review of a proposed 820.9 trillion won (US$615.6 billion) national budget for 2027, up 12.8 percent from this year's baseline.

The global semiconductor supercycle has swelled corporate tax receipts, allowing the Lee Jae Myung administration to propose record spending growth. But revenues tied to global supply cycles offer no assurance that fiscal room will last.

South Korea needs public investment in technologies and infrastructure that can lift productivity beyond semiconductors. National debt is forecast to climb from 1,413.8 trillion won this year to 1,519.8 trillion won in 2027, even as its share of gross domestic product is projected to fall from 51.6 percent to 48.3 percent.

The main test lies in the 162.3 trillion won Future Response Fund. The government plans to channel semiconductor windfalls into growth industries, youth programs, regional development and education.

Of that sum, 45.4 trillion won is earmarked for projects next year and about 104.4 trillion won is held in reserve. The reserve could finance programs whose costs persist after the revenue behind them dries up.

The Budget Office expects the fund's additional tax receipts to be concentrated in 2027 and 2028, with no further windfall revenue from 2029 onward. It warns that some proposed programs would create recurring payments that will be difficult to scale back.

The office has urged the government to explain how extra revenue from the chip boom will be divided between the fund and repayment of government bonds. Such scrutiny reflects fiscal prudence and need not signal hostility to investment.

The Future Response Fund's proposed operating rules would let the government change its allocation plan by up to 30 percent without seeking fresh approval from the National Assembly. Officials could move substantial sums among projects after lawmakers approved the original plan, weakening legislative control over the money.

The fund's accounting method could also deprive local governments of revenue. Depositing excess tax receipts before calculating local allocation taxes may reduce transfers by an estimated 30.5 trillion won. Local governments cannot help deliver a national growth agenda if the funding formula strips them of resources.

Lawmakers should examine what each project is expected to deliver. Funding for semiconductor complexes, physical artificial intelligence, quantum technology and research infrastructure could build capabilities that private investors may hesitate to finance.

Cash assistance demands stronger evidence. The 1.1 trillion won rural basic-income pilot, which distributes monthly vouchers, should show that it can strengthen local economies or slow population decline. The youth culture and arts pass, whose allocation is set to rise more than twentyfold to 800 billion won, also needs a convincing case for the public benefit.

The political divide over the budget is deep. The ruling Democratic Party of Korea wants to retain the fund's basic structure, while the main opposition People Power Party seeks 134.3 trillion won in cuts. Its target includes 104.4 trillion won in reserves, 26.9 trillion won in project cuts and about 3 trillion won in estimated interest savings.

President Lee Jae Myung is due to address the National Assembly on Monday and may use the speech to explain the rationale for the 2027 budget. Committee reviews will continue through November, with the statutory deadline for passage set for Dec. 2.

Parliament should protect projects with credible long-term returns and keep major changes to the fund's allocations under legislative control. Above all, it must prevent a temporary tax windfall from becoming a permanent spending base. Once the semiconductor cycle turns, Korea should retain productive capacity built with the windfall.
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