(EDITORIAL from Korea Herald on Nov. 2)

The Korean National Assembly is currently reviewing a proposed 820.9 trillion won (US$615.6 billion) national budget for 2027, which is a 12.8 percent increase from this year's baseline. The surge in semiconductor industry revenues has led the Lee Jae Myung administration to propose record spending growth. However, the temporary nature of these semiconductor revenues raises concerns about the sustainability of the budget.

The government's proposed Future Response Fund, which aims to channel semiconductor windfalls into growth industries, youth programs, regional development, and education, is a key focus of the budget review. A substantial portion of the fund's 162.3 trillion won allocation, specifically 45.4 trillion won for the upcoming year and 104.4 trillion won in reserve, could generate recurring expenses that are difficult to scale back once the semiconductor boom subsides.

The Budget Office has cautioned that some proposed programs in the fund may create ongoing payments that lack a sustainable revenue base beyond 2029. This calls for a thorough examination of how the additional tax revenues from the chip boom will be allocated between the fund and repayment of government bonds.

Furthermore, the accounting method employed by the fund could potentially deprive local governments of revenue, with an estimated 30.5 trillion won in transfers at risk. This situation poses a threat to the ability of local governments to contribute to the national growth agenda.

Among the projects receiving significant funding, the rural basic-income pilot and the expansion of youth culture and arts programs have come under scrutiny. Both initiatives have been asked to demonstrate their ability to strengthen local economies or mitigate population decline, and provide a compelling case for their public benefit.

The political landscape surrounding the budget is deeply divided. The ruling Democratic Party of Korea seeks to maintain the basic structure of the Future Response Fund, while the main opposition People Power Party is calling for cuts amounting to 134.3 trillion won. The opposition's proposals include reducing the fund's reserves, cutting back on project allocations, and saving an estimated 3 trillion won in interest payments.

President Lee Jae Myung is set to deliver a speech at the National Assembly on Monday, where he may elucidate the rationale behind the 2027 budget. Committee reviews will continue throughout November, with the statutory deadline for budget passage set for December 2. It is crucial for the legislature to ensure that projects with credible long-term returns are protected while maintaining legislative control over major changes to the fund's allocations.

Above all, the focus must be on preventing a short-term tax windfall from transforming into a permanent spending base as the semiconductor cycle inevitably turns.