[Editorial] Congressional Oversight of the KRW 200 Trillion Future Response Fund Must Be Strengthened

The National Assembly of the Republic of Korea has put the brakes on the government's discretion in operating the Future Response Fund. The National Assembly's Finance, Economy and Planning Committee recently stated in its review report on an amendment to the National Finance Act that the fund could weaken the Assembly's control over public finances. The government maintains that the fund must be operated flexibly to respond quickly to changes in economic conditions and tax revenues. However, the fund will start next year at KRW 162 trillion and could grow to around KRW 200 trillion. This is an enormous amount of taxpayers' money that must not be used at the government's convenience without principles or oversight.
The issue is a special provision allowing the government to change fund expenditures by up to 30% without approval from the National Assembly of the Republic of Korea. Based on next year's program expenditures of KRW 45.4 trillion, the government could alter approximately KRW 13.6 trillion at its own discretion. A 30% limit is generally applied to financial funds with highly volatile expenditures. There is insufficient justification for granting such an exception to the Future Response Fund, most of whose spending is program-based and directed toward youth, growth engines, regional development and education. The same applies to a provision that would allow the government to use the fund's surplus resources for the general account without a supplementary budget in the event of a tax revenue shortfall. When revenue declines, expenditure items and priorities must be adjusted, and that should naturally be subject to review by the National Assembly of the Republic of Korea.
A more fundamental concern lies in the fund's revenue and spending structure. The Future Response Fund's primary source of revenue is additional tax revenue exceeding the 10-year growth trend, among the domestic tax revenue projected for next year. However, if the semiconductor industry slows, tax revenues could quickly decline. By contrast, once programs for youth employment and housing, scholarships and regional support are launched, cutting them back again would trigger enormous resistance. A structure in which revenue fluctuates while spending remains fixed could constrain public finances.
If a temporary tax windfall is used to increase permanent spending, a subsequent decline in revenue will ultimately have to be covered through the general account or government bonds. When tax revenues are strong, repaying debt is just as important as creating new programs. It is necessary to ask whether missing an opportunity to reduce the national debt and expanding the spending structure first is truly a choice for the future.
In this regard, what is happening in France today deserves close attention. Amid turmoil in global sovereign bond markets, the rise in French interest rates has been particularly steep. French government bond yields recently surged to their highest level since 2002. The yield spread between 10-year French and German government bonds has reached 1.3 percentage points, the widest gap since the Eurozone fiscal crisis that followed in 2012. French yields have even risen above those of Italy, which has traditionally been regarded as a country facing fiscal risks. It is worth reflecting on the fact that French government bonds, once one of Europe's leading safe-haven assets, have been driven to this point.
Markets are questioning France's fiscal position. This year's fiscal deficit is expected to reach the mid-5% range of gross domestic product (GDP), while national debt has exceeded 119%. Public spending accounts for 57.2% of GDP, 7.4 percentage points above the Eurozone average. Social security spending, including pensions and healthcare, accounts for a large share. Growth is expected to remain in the 0% range this year, while political parties remain divided over fiscal reform. The interest burden has also grown as government bonds issued at lower rates in the past are refinanced at higher rates. France has fallen into a vicious cycle in which debt pushes up interest rates, and higher rates in turn place further pressure on its public finances.
Bold investment in future industries is necessary. However, existing budget programs must not simply be moved into the fund, nor should the pool of beneficiaries be expanded in ways that increase permanent spending. A mechanism is needed to automatically adjust spending when tax revenues decline. The 30% self-adjustment exception should be reconsidered in its entirety, and prior review by the National Assembly of the Republic of Korea should be mandated for changes above a certain size. Paying down debt when tax revenues are strong and preparing in advance for a reduction in fiscal capacity is what truly constitutes responding to the future.