30% Cap on Future Response Fund Raises Concerns Over Weakened National Assembly Fiscal Oversight

[Financial News] Concerns have been raised that the National Assembly's fiscal oversight could be weakened by the Future Response Fund. The government would be able to change up to 30% of major expenditures at its own discretion without National Assembly approval. It would also be allowed to transfer funds to the general account without drawing up a supplementary budget when tax revenue falls short. Since additional tax revenue from the semiconductor boom is expected to serve as a major funding source, the sustainability of the funding and possible overlap with existing fiscal programs have also emerged as issues for review.
According to fiscal authorities and political circles on the 4th, the National Assembly Planning and Finance Committee said in a recent review report on an amendment to the National Finance Act regarding the Future Response Fund, "While the government's flexibility in managing public finances would expand, the scope of the National Assembly's prior review and control over the budget and fund management plans could be relatively reduced."
■30% of KRW 45 trillion in program expenses, or KRW 13.6 trillion, can be 'changed independently'The first issue identified by the committee was the Future Response Fund's limit on autonomous changes. In the amendment to the National Finance Act submitted to the National Assembly, the government allowed major expenditures from the Future Response Fund to be changed by up to 30% at its own discretion. This is the same level allowed for financial funds and is higher than the 20% limit applied to program-oriented funds.
According to the fund management plan submitted by the government to the National Assembly last month, the Future Response Fund's program expenses for 2027 amount to KRW 45.3625 trillion. Among the 72 funds in total, it is the second-largest after the National Pension Service (NPS). Compared with the average program expenses of about KRW 3.9682 trillion per fund next year, the figure is more than 11 times larger.
Applying the 30% limit to program expenses would mean that the government could independently change about KRW 13.6 trillion without prior approval from the National Assembly. Compared with applying a 20% limit, the amount subject to autonomous changes would increase by about KRW 4.5 trillion.
The government says the measure is intended to enable a swift response to changes in tax revenue and economic conditions while allowing more flexible fiscal management. However, the committee determined that the Future Response Fund differs in nature from financial funds. While spending from financial funds can vary depending on financial market conditions or demand for funds, most of the Future Response Fund's expenditures are program-based, with policy objectives and eligible recipients already defined.
The special provision allowing surplus funds from the Future Response Fund to be transferred to the general account without preparing a supplementary budget when tax revenue is insufficient was also identified as a related issue. Under current law, reflecting transfers from a fund in the revenue budget during a fiscal year requires both the preparation of a supplementary budget and an amendment to the fund management plan.
■Funding sustainability and overlap with existing programs emerge as issuesThe sustainability of the Future Response Fund's funding is also under review. The committee pointed out that the fund's resources could decline if inflows of additional tax revenue are not sustained at sufficient levels, adding that the long-term sustainability of its funding source needs to be examined.
Even after the fund's size declines, spending needs for programs that have already begun may remain. In that case, other sources of funding, including the general account, could be required to cover the shortfall in program expenses. The committee believes this could make the nation's finances more rigid over the long term.
The possibility that tax revenue estimates could diverge from actual revenue is another variable. If actual tax revenue comes in below the amount initially reflected in the fund, the fund's operations could be disrupted.
The possibility of overlapping roles with existing fiscal programs was also raised. The Youth Account could overlap with the Employment Insurance Fund and the Housing and Urban Fund; the Growth Engine Account could overlap with industrial and science-and-technology-related funds and general-account research and development (R&D) programs; and the Local Account could overlap with the Special Account for Balanced Regional Development.
The fact that the bill does not specify detailed criteria for selecting Future Response Fund programs was also cited as a problem. Regarding the so-called "NEXT principles" presented by the government as its criteria for selecting fund programs, the report pointed out, "The bill does not stipulate specific criteria for selecting programs, including the NEXT principles."


[email protected] Kim Chan-mi Reporter