Tax chief calls 'future response fund' essential to stable fiscal footing

National Tax Service Commissioner Lim Gwang-hyeon said a proposed "future response fund" — to be built from surplus tax revenue generated during semiconductor booms — is essential for sustainable public finances.

Lim made the case Sunday in a post on X, formerly Twitter, titled "For today's tax revenue to become tomorrow's competitiveness." He wrote that sustainable fiscal policy depends not only on how much revenue the government collects but on how stable the structure of that collection is.

He described the country's tax intake since 2000 as a "concentrated portfolio," heavily skewed by the ups and downs of the semiconductor cycle, and said the volatility was a constant source of concern for him as the official responsible for national revenue.

"When the semiconductor industry booms, tax revenue — led by corporate tax — rises sharply. But when the semiconductor cycle slows, corporate earnings deteriorate and revenue falls with them, creating recurring difficulties in fiscal management," he said.

The average annual growth rate in tax revenue over the past two decades has been 5.71 percent, but the swings around that average have been extreme. In 2021, a surge in semiconductor demand tied to COVID-19-era remote activity pushed revenue up 20.6 percent from the previous year; two years later, a slowdown in IT demand sent it down 12.6 percent.

Lim said the semiconductor sector — the country's core competitive asset — should be nurtured as a "super-gap" industry to cement South Korea's global technology lead, while new strategic industries representing future growth should also receive active investment.

He said doing so would not only secure new growth engines but diversify the industrial base. Over the long term, he added, it would create a virtuous cycle leading to a more balanced and stable tax revenue foundation.

"That is why the plan to establish a 'future response fund' — using additional tax revenue from semiconductor windfalls to strengthen the country's long-term competitiveness through support for three major mega-projects and similar initiatives — is an absolutely necessary policy," he said.

From the perspective of a revenue agency, he added, the fund would allow the government to simultaneously secure fiscal sustainability against rising welfare demands driven by the low birth rate and aging population, and build the competitiveness needed for tomorrow.