South Korea to Establish Future Fund Using AI and Chip Tax Windfalls

South Korea will launch a new fiscal fund to channel tax revenue generated by the artificial intelligence and semiconductor boom into long term economic growth and strategic investments. The Ministry of Planning and Budget announced the plan on Friday, stating that the fund will serve as a platform to raise the country's potential growth rate and mitigate the effects of tax revenue volatility. Budget Minister Park Hong-geun described the fund as a way to proactively use fiscal capacity rather than spending resources on one-off expenditures or maintaining fiscal soundness in a passive manner.

The government is introducing a distinction between windfall revenue and surplus revenue. Windfall revenue refers to tax receipts that exceed long term trends due to structural economic changes or industrial supercycles, such as the current chip boom. Surplus revenue refers to receipts that exceed official short term forecasts. While windfall revenue will primarily finance the fund, surplus revenue may be used for supplementary budgets, debt repayment, or contributions to the fund. One source notes that the fund may use a 10 year window to capture the typical three to five year semiconductor cycle.

Investment will focus on youth, growth engines, regional economies, and education. Specific priorities include housing, employment, and childbirth support for young people, as well as the government's three megaprojects initiative. This initiative targets the AI industry and seven future oriented sectors: small modular reactors, nuclear fusion, renewable energy, quantum technology, aerospace, advanced biology, and supply chains for advanced materials and components. While the government has not officially confirmed the size of the fund, estimates suggest it could range from 60 trillion won to over 100 trillion won.

Simultaneously, the government will overhaul the education budget allocation mechanism to reflect the decline in the school age population. The current system automatically allocates 20.79 percent of internal tax revenue to local education authorities. The new proposal will break this automatic link, adjusting grants based on economic growth and student population changes while including safeguards to ensure funding does not fall below previous nominal amounts.