[Exclusive] 'Filling the Fund Treasury'... Public Fund Management Fund Set at a Record High of 322 Trillion Won

2024 Gongja Fund 284.7 Trillion → 322.8 Trillion
Ministry of Economy and Finance Urges "Increase Gongja Fund" in Budget Review
Structural Deficit Worsens Due to Previous Government's Mismanagement
Potential Use if Future Tax Revenue Shortfall Deepens
Criticism That Using It to Solve Tax Revenue Issues Contradicts Government Policy

As the government prepares next year's budget, it has allocated the Public Fund Management Fund (Gongja Fund), known as the 'public fund reservoir,' to a record high of 322.8 trillion won. This amount is nearly half of the 656.9 trillion won 2024 budget. This is the result of the Ministry of Economy and Finance demanding that ministries with ample fund resources significantly increase their deposits to the Gongja Fund. This is interpreted as a strategy to promote the soundness of the fund while responding to tax revenue shortfalls as needed.

According to a comprehensive report by Asia Economy on the 30th, the Ministry of Economy and Finance finalized the Gongja Fund at 322.8 trillion won while preparing the 2024 budget. This is an increase of 38.1 trillion won (13.3%) from this year's Gongja Fund of 284.7 trillion won. The Gongja Fund had been decreasing continuously since it was set at 268.7 trillion won in 2020, when it was increased by about 100 trillion won at once. However, it has been on the rise again since the Yoon Seok-yeol administration prepared this year's budget.

The Gongja Fund is a fund separately gathered by drawing from various funds. It is used to inject into other funds with poor financial conditions or for government bond issuance and repayment. Because it serves as a fund for other funds, it is called the reservoir of public funds. It was established to prevent distortions in public funds caused by depositing surplus funds into the private sector. The Ministry of Economy and Finance manages it, and after one year, it repays the original fund with interest.

While drafting next year's budget, the Ministry of Economy and Finance demanded that ministries with ample funds significantly increase their deposits to the Gongja Fund. The Industrial Accident Compensation Insurance Fund is a representative example. The Ministry of Employment and Labor planned to deposit 1.55 trillion won from the Industrial Accident Compensation Insurance Fund to the Gongja Fund, the same as last year. However, the Ministry of Economy and Finance rejected this plan and proposed an increase of 1.75 trillion won (112.9%) to 3.33 trillion won. In principle, each fund decides on the Gongja Fund, but the Minister of Economy and Finance can request it when large-scale funds are needed due to war, disasters, or mass unemployment.

Increased Deficits and Gongja Fund... Will It Be Used to Address Tax Revenue Shortfalls?

The background for the Ministry of Economy and Finance's expansion of the Gongja Fund lies in deficit issues. The Gongja Fund's balance began to worsen when the Moon Jae-in administration actively managed finances. For example, as the employment insurance deficit worsened, more than 10 trillion won was drawn from the Gongja Fund over two years. This means the Gongja Fund was used to reduce the government's fiscal burden. As a result, the Gongja Fund's balance turned to a deficit for the first time in 10 years since 2011. This year, the interest paid by the Gongja Fund on borrowings amounts to 19.2156 trillion won.

On October 6, 2021, Hong Nam-ki, then Deputy Prime Minister and Minister of Economy and Finance, responding to questions at the National Assembly's Planning and Finance Committee audit.

Due to the nature of the Gongja Fund, a deficit is not necessarily bad, but if excessive, it can cause problems in overall fund management. On October 6, 2021, during a National Assembly audit when he was a member of the National Assembly, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho pointed out to then Deputy Prime Minister Hong Nam-ki, "The Gongja Fund is drawing too much money, so now the amount to be repaid exceeds the new funds received, resulting in negative available resources," adding, "In this case, additional funds must be obtained from other funds, worsening the balance of individual funds or causing reductions in their core projects."

The Ministry of Economy and Finance has made efforts to improve by recommending structural adjustments to 60 projects across 18 funds this year, but due to accumulated deficits, it decided to expand the Gongja Fund again this year. A Ministry of Economy and Finance official explained, "As various mandatory expenditures increase, borrowing from the Gongja Fund is structurally increasing," adding, "Although it may vary depending on circumstances next year, the deficit size of the Gongja Fund is expected to be smaller than this year." Regarding concerns that this might increase the burden on individual fund operations, the official added, "We only requested it from funds that have ample resources."

Some analysts interpret that the Ministry of Economy and Finance increased the Gongja Fund to respond to tax revenue shortfalls. National tax revenue in the first half of this year was 178.5 trillion won, 39.7 trillion won less than the first half of last year. The Ministry expects the tax revenue shortfall to worsen in the second half. The forecast for next year's national tax revenue is also expected to decrease by more than 33 trillion won from this year to 367 trillion won. This means a strong tax revenue recession will continue for two consecutive years. In this situation, bold fiscal spending on sound finance and welfare for the vulnerable must be carried out simultaneously. Securing ample funds in the Gongja Fund next year allows for quick access to funds when tax revenue shortfalls suddenly occur in the future.

However, there are criticisms that using the Gongja Fund to address tax revenue shortfalls contradicts the government's policy emphasizing debt reduction. One of the main purposes of the Gongja Fund is government bond repayment, and there has been no precedent of using tens of trillions of won to cover tax revenue shortfalls. Also, using the fund to cover tax revenue means less money is available to repay debt. Jang Hye-young, a member of the National Assembly's Planning and Finance Committee from the Justice Party, criticized, "The response that they will cover tax revenue shortfalls by using world surplus funds and fund surpluses is like covering the sky with the palm of the hand."