Korean media: "Using excess semiconductor taxes for a sovereign wealth fund" is the right direction

Deputy Prime Minister of South Korea, Koo Yun-chul, stated that a substantial portion of the excess tax revenue generated by the semiconductor supercycle should be invested in a sovereign wealth fund. Koo said, "We won't simply distribute and spend the money earned from semiconductors; instead, we must cultivate it into future assets. We should use excess tax revenues as funding for a sovereign wealth fund, investing them to create a virtuous cycle where money generates more money." Rather than squandering the fruits of prosperity through cash handouts like livelihood support payments, preserving this surplus as an asset reserve to fuel future growth is the correct path forward.

Securities firms forecast that Samsung Electronics and SK Hynix’s operating profits this year will reach 500 trillion KRW (approximately 223 billion RMB), more than five times last year’s 91 trillion KRW (approximately 40.59 billion RMB). Simply put, if calculated at a 20% corporate tax rate, these two companies alone would pay 100 trillion KRW (approximately 446 billion RMB) in corporate taxes—exceeding last year’s total national corporate tax revenue of 84 trillion KRW (approximately 374.6 billion RMB). Additionally, if around 10% of operating profits are distributed as performance bonuses, individual income taxes (with a top marginal rate of 45%) paid by employees would increase significantly, leading to a surge in local tax revenues accounting for about 10% of both corporate and personal taxes. The stock market boom has also driven up securities transaction taxes.

Previously, certain government departments favored distributing this money rather than investing it for future growth. Policy Director at the Blue House, Kim Yong-bum, proposed schemes such as youth entrepreneurship assets, basic income for rural communities, and enhanced pension benefits—collectively referred to as “national dividends.” Meanwhile, Minister of Employment and Labor Kim Young-hoon stated: "The only solution for socially redistributing excessive profits from large corporations is through social dialogue."

The semiconductor industry is cyclical, and the current supercycle cannot last forever. If temporary tax increases during prosperous periods are mistakenly treated as permanent revenue sources, leading to significant government spending hikes, then when downturns arrive, the country risks falling into a vicious cycle of issuing government bonds to cover tax shortfalls. In fact, in 2021 and 2022, South Korea recorded excess tax revenues of 61.3 trillion KRW (approximately 27.34 billion RMB) and 52.6 trillion KRW (approximately 25.46 billion RMB), respectively. At the time, the government spent these funds on cash disbursements such as disaster relief grants. As a result, the country faced nearly 90 trillion KRW (approximately 40.14 billion RMB) in tax deficits over the following two years—an experience we must not repeat.

To ensure sustainable growth and fiscal soundness, excess tax revenues must be accumulated as a buffer against potential downturns in the semiconductor market, serving as a financial resource for future generations. Norway provides a model example: the massive revenues from the development of the North Sea oil fields were channeled into a sovereign wealth fund, enabling Norway to emerge as a major player in global finance. Over the past 30 years, the Norwegian Sovereign Wealth Fund has achieved an average annual return of 6.6%, growing its assets to 3,000 trillion KRW (approximately 13.38 trillion RMB). It also acts as a financial cushion, helping fill budget gaps when government revenues fall short. How a nation manages excess tax revenues during periods of temporary prosperity will profoundly impact its long-term competitiveness and the fate of future generations.

Source: Chosun Ilbo

Original article: toutiao.com/article/1866884010801162/

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