Will the Future Response Fund Exceed 100 Trillion Won... Grants Poised to End Linkage System

Ministry of Planning and Budget to Announce Reform Direction as Early as This Week

The government is expected to officially announce, as early as this week, both the plan to create a Future Response Fund and the direction for reforming local education finance grants. With an unprecedented semiconductor boom fueling expectations of a massive increase in additional tax revenue, projections suggest that the new Future Response Fund could reach as much as 100 trillion won.

For the local education finance grants, the government is seriously considering abolishing the system that links the grants to domestic tax revenue, and instead reflecting the recent nominal growth rate and changes in the school-age population in the grant calculation formula. However, while the Ministry of Education has insisted on legally guaranteeing the current grant levels, the Ministry of Planning and Budget has refused, resulting in a standoff as the two ministries struggle to reach a final agreement.

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Surplus from Grants Reform Also Considered for Fund... Outlook for Up to 100 Trillion Won in Reserves

According to authorities on the 16th, the Ministry of Planning and Budget intends to unveil the plan for establishing the Future Response Fund between the 20th and 21st. The Future Response Fund is a government-initiated fund aimed at channeling the substantial surplus revenue from the semiconductor supercycle into areas like youth, future growth engines, regional development, and talent cultivation.

The Ministry of Planning and Budget has announced that it will deposit the increase in tax revenue that exceeds the long-term trend into the Future Response Fund. The benchmark for the long-term trend is likely to be the 10-year or 20-year annual average growth rate of domestic tax revenues. For the fund’s inaugural year, which is next year, any amount above the 10-year/20-year domestic tax annual average growth rate of 6.1% will be contributed to the fund.

Based on this year's supplementary budget, domestic tax revenue stands at 368 trillion won. If the long-term trend is applied, next year's domestic tax revenue is projected to be 390 trillion won. Separately, the Ministry of Planning and Budget forecasts next year’s total national tax revenue to be more than 500 trillion won. Given that domestic taxes usually account for about 90% of total national taxes, next year's domestic tax revenue is expected to be at least 450 trillion won. Mathematically, subtracting the long-term trend estimate (390 trillion won) from the projected domestic tax revenue (450 trillion won or more) results in about 60 trillion won or more being allocated to the fund.

This is a relatively conservative estimate. The recent surge in tax revenue due to the semiconductor sector has been led by increases in income tax from higher special bonuses and improvements in corporate tax from strong earnings, both of which are classified as domestic tax revenues. In particular, corporate taxes based on this year’s performances will be collected in earnest next year after annual settlements, further potentially increasing next year's domestic tax revenue. This means that the proportion of domestic taxes compared to total national taxes is very likely to increase above the usual 90%.

Indeed, in the first half of this year (January to June), the share of domestic taxes out of total national tax revenue was already 93.0%, even though only part of the increase in corporate taxes was reflected. If the share rises to 95% next year, domestic tax revenue could reach 475 trillion won or more, with up to 85 trillion won or more accrued into the fund. The government is also reviewing a plan to allocate not just the current level of grants (20.79% of domestic taxes), but also the difference generated by the grant reform, to the fund. Thus, the Future Response Fund could potentially reach 100 trillion won.

Yonhap News

Tug of War over Fund Usage and Account Naming... Difficulties in Reflecting Primary and Secondary Education

The use of the Future Response Fund is also a major point of contention. While the Ministry of Planning and Budget is advocating for the fund to be used mainly for higher and lifelong education and early childhood education, the Ministry of Education insists that, as before, it must also be invested in primary and secondary education. This is due to concerns that eliminating the linkage to domestic taxes could reduce resources for primary and secondary education.

The “Emergency Action Against Local Education Finance Grant Reform,” a coalition of 254 education organizations including the Korean Federation of Teachers’ Associations, is also strongly insisting that the fund be used for primary and secondary education purposes.

With this ongoing disagreement about the fund’s purpose, the very name of the accounts to be set up within the fund has yet to be finalized. While Minister of Education Choi Kyojin has proposed establishing a separate “Education Account,” some observers believe the name “Talent and Education Account” is also being seriously considered.

A government official said, “The Ministry of Education hopes the fund will also be used for primary and secondary education, but it has been difficult to find common ground,” adding, “The issue of how the fund is used is tied to other contentious points and requires an all-encompassing agreement.”

Hongkeun Park, Minister of Planning and Budget, is speaking at the public discussion on the restructuring of local education finance grants held on July 8 at the Government Seoul Office in Jongno-gu, Seoul. 2026.7.8 Photo by Yonjong Jun

Without Reform, Grants Would Reach 100 Trillion Won... With Reform, Tens of Trillions Less than Current Level

Alongside the creation of the Future Response Fund, the government is also pursuing a reform of the local education finance grants. The existing system that automatically allocates 20.79% of domestic tax revenue to the grants is poised to be scrapped. Instead, it is likely that the three-year average nominal growth rate and the rate of change in the school-age population will be used in the formula for calculating next year's grants.

Initially, the Ministry of Planning and Budget and the Ministry of Education discussed a plan to reflect 40% of the school-age population change rate in the formula, but through negotiations, support has shifted toward lowering the reflected ratio to 35%. For the Ministry of Education, this would reduce the decrease in grants caused by falling school-age populations compared to the previous proposal.

If this new formula is applied, next year's grants are expected to total around 80.3 trillion won, a 5.1% increase from this year's supplementary budget total of 76.4 trillion won. Compared to the roughly 100 trillion won in grants that would result if the existing system continued, this represents a reduction of about 20 trillion won. However, it is understood that the “35% school-age population change rate formula” is not yet the final agreement between the two ministries.

Meanwhile, the Ministry of Education agreed to accept the end of the linking system, but requested that a provision be added to the revised law ensuring it could secure grants each year equivalent to the current rate (20.79%). However, as the Ministry of Planning and Budget, which oversees the entire national budget, rejected this request, no compromise has been found.

This content was produced with the assistance of AI translation services.