'100 Trillion-Plus Future Response Fund' Launched... Shifting Focus from Short-Term Spending to Investment in AI, Talent, and Local Development

Utilizing Additional Semiconductor Tax Revenue for Investment Resources
Reform of Local Education Grants Linked to Growth Rate

The government plans to establish a new "Future Response Fund," utilizing additional tax revenues from the semiconductor sector as resources for future investments. The system linking the Local Education Finance Grant to "20.79% of domestic tax revenue," which has been maintained for 54 years, will be completely overhauled and replaced with a formula based on the nominal economic growth rate. With tax revenues next year expected to hit a record high of over 500 trillion won, the fund is anticipated to be sized at 100 trillion won plus an additional amount during its first year of operation.

According to the Ministry of Planning and Budget, the first Fiscal Management Strategy Meeting was held on August 21, where the Future Response Fund Plan, including these measures, was discussed. The aim is to overcome the structural vulnerability of tax revenue fluctuations driven by the semiconductor industry and to reverse the long-term downward trend in potential growth rates.

Hongkeun Park, Minister of Planning and Budget, is attending the future response fund party-government council held at the National Assembly Members' Office Building on the 20th. 2026.8.20 Photo by Hyunmin Kim

Additional Semiconductor Tax Revenue as Key Resource

The core financial resources for the new fund will be the additional domestic tax revenues. If domestic tax revenues such as corporate income tax exceed the long-term trend levels calculated based on the average annual growth rate of the past decade, the excess amount will be accumulated in the fund. The fund will also include excess revenue above the initially budgeted amount based on revised annual tax estimates, remaining balances under the National Finance Act, and income from the management of surplus funds.

For example, if next year’s domestic tax revenue is expected to reach 450 trillion won, and the long-term trend calculated with a recent 10-year average growth rate of 6.1% stands at about 390 trillion won, then around 60 trillion won in additional revenue will be allocated to the Future Response Fund. Including the excess tax revenue and other remaining balances, the fund's actual size is expected to become even larger. As the semiconductor super-cycle leads to substantial additional tax revenue and national tax income expands to more than 500 trillion won—possibly up to 580 trillion won next year—the Future Response Fund could reach a size of 100 trillion won plus an additional amount.

Focused Investments in the Future, Youth, Regions, and Education

The funds raised will be concentrated in four key areas: youth, growth engines, regional development, education, and human resources. For youth, the fund will integrate support for jobs, housing, assets, marriage, and childbirth, including vocational training, job experience, entrepreneurship, and housing ladders. Growth engine investments will target artificial intelligence (AI), three mega-projects, and seven seed (SEED) technologies, developing frontier AI, physical AI, AI data centers (AIDC), and reinforcing power and water infrastructure. Investments will also go toward small modular reactors (SMRs), nuclear fusion, renewable energy, quantum, space, aviation, advanced biotechnology, and advanced supply chains. For regional development, the fund will expand living infrastructure and rural basic income, while supporting administrative integration and regional growth. Regarding education and human resources, funding will bolster STEM and science talent, attract overseas talents, strengthen university competitiveness, and support vocational, lifelong, and early childhood education.

Abolition of '20.79% Automatic Linkage' for Education Grants

The most notable change is the complete overhaul of the Local Education Finance Grant. The traditional mechanical structure of automatically allocating "20.79% of domestic tax revenue" will be scrapped. Instead, a new formula will be adopted that takes the previous year’s grant, applies the three-year average nominal growth rate, and includes 35% of the change in the school-age population. This is meant to mitigate problems that arise when, due to a rapidly declining school-age population resulting from low birth rates, the automatic linkage causes the grant to increase or decrease sharply according to tax income fluctuations.

Despite the reform, thanks to excess semiconductor tax revenue, next year's total grant amount is expected to reach 78.9 trillion won—an increase of 1.8 trillion won over the medium-term plan. The average annual per capita grant growth rate will also rise from 8.5% (2006–2025) to 10.1% (2026–2030).

The government plans to redirect the resources secured by this reform to the education and human resources account within the Future Response Fund, with focused investments in early childhood, secondary, lifelong education, and the attraction of outstanding domestic and international talents. If the total grant declines compared to the previous year, the fund will make up the difference as a safeguard. The local allocation tax, which is set at 19.24% of domestic taxes, will retain its linkage rate; however, the amount allocated to the fund will be excluded from the base for calculation. Instead, a new local account will be established for reinvestment in key regional growth hubs and improvements in residential conditions, and if revenues fall below the long-term trend, the fund will be used to stably support local government finances.

Experts Call for Safeguards

Experts have expressed concern about operating the fund on the assumption that the additional tax revenue generated by the semiconductor boom will be a continued source, noting the need for mechanisms to control spending pressures driven by vested interests. Jongwon Son, a research fellow at the Center for Fiscal Policy and Research, commented, "While the intent to separately manage additional tax revenues from the semiconductor supercycle is positive, it is more important to control how the fund is used rather than how it is created. If there is a shortfall in tax revenue, the fund's income may be cut off, and it could even be dissolved after a change of administration." He added, "To prevent the fund from being diverted to temporary support or rigid expenditures due to political demands, a stricter legal framework and management system should be established, even more rigorous than the current National Assembly supplementary budget review."

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