South Korea undecided on use of 63.2 trillion won excess tax revenue, minister says
In short
Minister of Planning and Budget Park Hong-keun (박홍근) said on October 8 that the government has not decided how to use this year's excess tax revenue, which it expects to reach 63.2 trillion won because of the semiconductor boom. He told a parliamentary audit that the government will consult relevant ministries on whether to use it to cut government bond issuance further or put it into other funds. The government has already cut bond issuance by 5 trillion won against its plan.
Read the full story 2 min read
South Korea's Minister of Planning and Budget Park Hong-keun (박홍근) said on October 8 that the government has not yet decided how to use this year's excess tax revenue. Answering Democratic Party lawmaker Yun Hu-duk (윤후덕) at the National Assembly's audit of the Ministry of Planning and Budget (기획예산처), he said the government would consult relevant ministries on whether to use it to further reduce government bond issuance or to put it into other funds. He said a policy decision had to come first before the Fund Management Committee (기금운용위원회) could discuss how to use it. [ 1 , 2 , 5 ]
The government expects excess tax revenue of 63.2 trillion won this year because of the semiconductor boom. It plans to set part of it aside in the Future Response Fund (미래대응기금) and use part to reduce bond issuance, Yonhap and Asia Economy reported. It has already cut bond issuance by 5 trillion won against plan; Seoul Economic Daily said the cut applied to October issuance. [ 1 , 2 , 5 ]
Newsis reported that, asked by Democratic Party lawmaker Ahn Do-geol (안도걸) about rising global bond yields, Park said the government would monitor the market and, if necessary, consider emergency buybacks and further issuance cuts with relevant agencies. Ahn also asked for a review of market-making buybacks, which fall from 25.8 trillion won this year to 16 trillion won next year; Park said he would keep consulting relevant agencies. [ 4 ]
People Power Party lawmaker Park Soo-young (박수영) said the fund's budgeted return of 3.85% matches the three-year bond yield, while funding next year's 222 trillion won in bonds costs at least 4.3%, a gap of 469.8 billion won a year. Park Hong-keun replied that the funding rate is about 4.1% and that the fund is preparing to earn at least 1.7 percentage points more than three-year bonds. Seoul Economic Daily reported that, when Park Soo-young criticised reserving 104 trillion won in the fund while national debt rises by 106 trillion won, the minister said Norway keeps issuing bonds even though it does not need deficit bonds. The paper said the two countries' fiscal structures differ. [ 3 , 4 , 5 ]
Democratic Party lawmaker Kim Tae-nyeon (김태년) asked whether the fund's surplus could be used for long-term investment, citing Taiwan's TSMC. Park said the fund is a fiscal stabilisation device and that strategic industries should be supported mainly by the National Growth Fund (국민성장펀드), at about 200 trillion won. People Power Party lawmaker Lee Jong-wook (이종욱) questioned the basis for a 12.5 trillion won cut in new issuance, Seoul Economic Daily reported. Park also rejected claims of regional bias in the fund and said holiday discount support, which President Lee Jae-myung had mentioned, does not fit the fund's purpose. [ 4 , 5 ]
Park said the IMF fiscal monitoring report due this month is very likely to show better figures than expected. He said the 2030 national debt forecast is 208 trillion won lower than in last year's plan and deficit-financed debt 193 trillion won lower. [ 1 , 2 , 5 ]
Why it matters
How the windfall is split between the Future Response Fund (미래대응기금) and lower bond issuance affects the bond market and national debt, and lawmakers questioned both choices at the audit. Park said he would consider further issuance cuts and emergency buybacks if needed as global bond yields rise, Newsis reported.
Key facts
- The government expects excess tax revenue of 63.2 trillion won this year because of the semiconductor boom. [ 1 , 2 , 5 ]
- Park Hong-keun said whether to use the excess revenue to further cut bond issuance or put it into other funds will be decided after consultations with relevant ministries and is not yet settled. [ 1 , 2 , 5 ]
- The government has already cut government bond issuance by 5 trillion won against its plan using the excess revenue. [ 1 , 2 , 5 ]
- Park said the government's 2030 national debt forecast is 208 trillion won lower than in last year's medium-term plan. [ 1 , 2 , 5 ]
- Park said deficit-financed debt is forecast 193 trillion won lower than in last year's medium-term plan. [ 1 , 2 ]
- Park said the government sees its bond funding rate at about 4.1% and is preparing for the Future Response Fund to earn at least 1.7 percentage points more than three-year government bonds. [ 4 ]
- Park said strategic industries should be supported mainly by the National Growth Fund (국민성장펀드), which he put at about 200 trillion won. [ 4 ]
Confirmed by several sources
- Park Hong-keun said on October 8 that the use of this year's excess tax revenue has not been decided and will be discussed with relevant ministries. [ 1 , 2 , 3 , 5 ]
- The government expects 63.2 trillion won in excess tax revenue this year. [ 1 , 2 , 5 ]
- Government bond issuance has already been cut by 5 trillion won against plan. [ 1 , 2 , 5 ]
- Park said the 2030 national debt forecast was lowered by 208 trillion won compared with last year's plan. [ 1 , 2 , 5 ]
- Park said the IMF fiscal monitoring report due this month is very likely to show better figures than the government expected. [ 1 , 2 ]
Still unclear
- Whether bond issuance will be cut further beyond the 5 trillion won already removed. Park said this is still under consultation and no decision has been made.
- Whether the Future Response Fund can earn more than the cost of the bonds that finance it. Park Soo-young (박수영) of the People Power Party put the funding cost at a minimum of 4.3%, while Park Hong-keun put it at about 4.1%, according to Newsis.
- The basis for setting the reduction in new bond issuance at 12.5 trillion won. Only Seoul Economic Daily reports this figure, as raised by lawmaker Lee Jong-wook (이종욱).
- How far Norway's bond issuance policy compares with South Korea's. Seoul Economic Daily said the two countries' fiscal structures and purposes of issuance differ, limiting a simple comparison.
What local media are saying
Timeline, local time
- October 8: Yonhap reports Park's remarks at the audit that the use of excess tax revenue is undecided. [ 1 ]
- October 8: Asia Economy reports the remarks from the parliamentary audit. [ 2 ]
- October 8: Yonhap publishes a combined report noting Park cited Norway's example. [ 3 ]
- October 9: Newsis reports Park said further bond issuance cuts could be considered if needed. [ 4 ]
- October 9: Seoul Economic Daily reports on Park's Norway comparison and lawmakers' criticism of the fund. [ 5 ]