Ahn Do-geol, Democratic Party lawmaker
National competitiveness is determined by the system that prepares for crises. Prosperous nations built a “Fiscal Dam” during every good harvest to prepare for the next lean year. King Sejong the Great did not consume all the grain simply because of a good harvest. He stored it in the Uichang and Sangpyeongchang granaries and, when famine struck, released it to save his people. Turning the fruits of a good harvest into security for the future—that was the wisdom of running a nation.
In the past, tax revenue rose and fell gradually in line with economic cycles. But as the artificial intelligence (AI) industrial revolution, the digital economy, and the restructuring of global supply chains gain momentum in earnest, the very structure of tax revenue is changing. As the share of corporate tax grows and volatility in semiconductors, finance, and asset markets is directly reflected in revenue, the swing between good harvests and lean years has become far wider than before. Recently, Korea’s public finances have been caught in an unprecedented “whirlpool of revenue volatility” driven by rapid changes in the macroeconomic environment. Good harvests and lean years alternate. In 2021 and 2022, Korea recorded “revenue bumper harvests” (excess tax revenue) of more than 61 trillion won and 52 trillion won, respectively. But immediately from 2023, over three years, it suffered an extreme “revenue famine” (revenue shortfall) approaching 100 trillion won.
This year is no different. In April, the supplementary budget to respond to the Middle East war reflected 25.2 trillion won in excess tax revenue. An additional 20 trillion won to 30 trillion won is expected to be added, bringing the total revenue increase to between 45 trillion won and 55 trillion won. Next year, if the semiconductor boom and a buoyant stock market continue, up to 100 trillion won in additional tax revenue could be generated. The revenue roller coaster has become routine, but no institutional mechanism to absorb it has yet been put in place.
The current National Finance Act contains no provision requiring the government to draw up a revenue-adjustment supplementary budget even when large-scale revenue swings occur during a fiscal year. When a revenue shortfall arises, the government has responded not by preparing a revenue-adjustment supplementary budget subject to National Assembly approval, but by arbitrarily cutting or letting lapse projects finalized by the National Assembly and slashing local grants and funds.
The year 2023 is a prime example. To cover a 56 trillion won revenue shortfall, the government arbitrarily adjusted spending by 50 trillion won (7.8%)—a full eight times the scale of adjustment to the main budget that the National Assembly customarily tolerates (about 0.8 to 1%). In effect, the executive branch re-drafted a budget that the National Assembly had already finalized. This undermined the efficiency of national resource allocation and placed a heavy burden on local finances. It also seriously damaged the National Assembly’s authority to review the budget.
The problem repeats even when excess revenue arises. Surplus revenue is tied up until the end of the year, processed as a “settlement surplus,” and only incorporated as revenue the following year. This amounts to effectively neglecting funds that could be immediately deployed for people’s livelihoods and national strategic future projects. It means taking as a loss the enormous opportunity that could be gained from fund management returns and timely fiscal investment.
Now, stopgap, improvised fiscal management must end. A standing system to respond to revenue swings must be established. To this end, revision of the National Finance Act is essential.
First, when revenue swings above a certain scale occur, the preparation of a supplementary budget—including revenue adjustment and expenditure adjustment—must be made mandatory. When revenue is expected to increase or decrease by more than a certain scale during a fiscal year, the government should revise the revenue budget to fit reality and submit the accompanying expenditure adjustment plan to the National Assembly. This would enhance the predictability of fiscal management and substantively guarantee the National Assembly’s authority to review and finalize the budget.
Second, a Future Response Fund—the “Fiscal Dam”—should be established. Like a dam that stores water during floods and releases it during droughts, it is a system that reserves funds when revenue is abundant and draws on them when revenue is scarce. It would enhance fiscal stability and serve as the foundation for sustainable national finances that are not shaken by economic cycles.
Third, part of the fund’s reserves should be used to expand future growth engines and for national strategic investment. The law should clearly stipulate that it may be used only for strategic projects that enhance national competitiveness—such as fostering national strategic industries including AI and semiconductors, easing the polarization of wealth and income, achieving balanced regional development, and investing in the future of young people.
Public finance is the reservoir of the national economy. Storing in good harvests and drawing on it in lean years—that is the basic principle of fiscal management. Revenue cannot be predicted, but finances can be prepared. Now Korea too must build a “Fiscal Dam” that absorbs both the good harvests and the lean years of tax revenue. It must establish a new fiscal system that converts excess revenue into an asset for the future and absorbs revenue shortfalls through institutional means. The power of public finance comes not from the size of the money but from a system that is not shaken by crises. That is fiscal policy that takes responsibility for future generations, and a new fiscal paradigm that will support Korea’s sustainable national competitiveness in the AI era.