![A picture of the Bank of Korea's currency ledger in Jung-gu, Seoul. [Joint Photography Foundation]](https://wimg.mk.co.kr/news/cms/202606/10/news-p.v1.20250930.b6797c51310548a9be09ee0d49ea7ae8_P1.jpg)
“It’s silly to repay government bonds with excess tax revenue.” President Lee Jae Myung made the remarks at a press conference marking the first anniversary of his inauguration on the 8th. President Lee also stressed that he will use excess tax revenue to discover new growth engines such as semiconductors in the future. Rather than paying off the country’s debt worth about 1,400 trillion won, the intention is to foster industries for future generations through investment. President Lee’s remarks are in principle correct. Making post-semiconductors such as artificial intelligence (AI), bio, and secondary batteries will benefit the people that much.
The history of Korean economic development is that when the government lays infrastructure with massive investments, such as the Park Chung-hee administration’s Gyeongbu Expressway project and the Kim Dae Jung government’s introduction of high-speed Internet networks, the private sector has taken a leap forward using it as leverage. This time again, it is right for the government to build AI infrastructure (nuclear power plants such as transmission and distribution networks and small module nuclear power plants (SMR) through massive investments in the AI era.
The problem is that unlike in the past, there is no shortage of money on the market. There is already a national growth fund worth 150 trillion won, and the amount of money that private equity funds and venture capital do not invest in alone amounts to 14 trillion won. Some officials complain, “It’s not that you can’t invest because you don’t have money.” The excess tax revenue that will come in due to the semiconductor boom by next year is about 120 trillion won. I have too much money.
For this reason, government offices are offering sovereign wealth funds and future response funds as alternatives. However, on the one hand, this is the same as certifying that it is “money that you don’t have to spend right away next year.”
If this is the case, how about using only 10-20% of the excess tax revenue to repay government bonds. The three-year treasury bond rate, the standard for market interest rates, jumped 1 percentage point from the beginning of the year to around 3.9 percent at the close of the day. A 1% increase in interest rates will increase the household interest burden by 13 trillion won per year. Taiwan has used excess tax revenue to pay off government bonds, and thanks to this, Taiwan’s government bond rate has stabilized in the mid-1% range (based on 10-year interest rates) for four years. As a result, Taiwanese companies are expanding their business further based on low procurement rates. Paying off any government bonds will reduce the interest burden on companies and households. It is hoped that President Lee will add a sense of balance of fiscal restraint to the expansionary fiscal theory.
[Reporter Na Hyun-joon from the Economy Department]
#