(EDITORIAL from The Korea Herald on Aug. 24)

South Korea's government has unveiled a new fiscal fund, the Future Response Fund, aiming to capture a share of the windfall revenue generated by the country's booming semiconductor industry. The fund, valued at over 100 trillion won ($72.1 billion), is designed to turn cyclical peaks into a long-term investment vehicle. However, concerns have been raised about the potential misuse of the fund for general-purpose spending.

The fund's architecture raises questions about its stability. Semiconductor cycles typically last three to five years, and a 10-year average may mask exceptional booms as the new normal. If demand for semiconductor technology weakens or supply chains are disrupted, the revenue feeding the fund could dry up while spending plans remain unchanged.

Additionally, some proposed uses for the fund, such as youth cultural and sports passes, housing subsidies, and rural basic income, are difficult to justify compared to more strategic investments in frontier AI, physical AI infrastructure, small modular reactors, nuclear fusion, and aerospace.

Another issue is the fund's governance. While the fund's annual plan will face parliamentary review, existing rules allow changes to major spending items within a 20-30 percent range without prior approval from the National Assembly. This could potentially turn the fund into a permanent supplementary budget, allowing for fiscal expansion with lighter legislative oversight.

The government has also announced plans to end the 55-year-old automatic allocation of 20.79 percent of domestic taxes to local education offices, reflecting the changing demographic landscape in Korea. However, the Future Response Fund plan does not address the issue of national debt, which reached 1,300 trillion won last year, surpassing the previous record.

Article 53 of the National Finance Act prioritizes debt redemption when surplus tax revenue occurs, and with long-term bond yields elevated worldwide, Korea should prioritize a stronger sovereign balance sheet.

Instead of a future-oriented industrial base, there is a risk that the fund could become a reservoir for discretion, allowing the government to spend away a buffer that could secure a more stable future. Strategic industrial investment must remain genuinely strategic, while welfare programs should remain in the main budget, and debt repayment should remain a central fiscal obligation.