Semiconductor Tax Surplus Sparks 'Curse of Plenty' Fears

Last year, the semiconductor industry's boom led to over 15 trillion won in tax revenue exceeding initial projections. Driven by the AI revolution and the semiconductor supercycle, South Korea's economy has entered a phase of structural surge in corporate profits and tax income, a stark contrast to the record 56 trillion won tax deficit in 2023 and the 31 trillion won shortfall in 2024. Projections indicate a potential excess tax revenue of 100 trillion won over the next three years.

The massive profits from Samsung Electronics and SK Hynix, acting as 'digital mines' in the AI era, positively impact the national economy by expanding wealth in downstream industries such as equipment, materials, power, construction, and logistics. The AI revolution is simultaneously a software industry and a 'heavy and large' industry that consumes vast resources; the ultimate destination for this excess wealth should focus on rebuilding the nation's physical infrastructure. Comprehensive replacement of transmission and distribution networks to support data centers and expansion of carbon-free power infrastructure like SMRs will create an entry barrier that other countries cannot easily overcome.

Discussions on how to utilize this surplus are ongoing, with various opinions such as 'distribute it to the public' and 'store it in the national coffers.' Critics warn that hasty decisions could jeopardize the future. Ideas for profit sharing are being floated, including 'citizen dividends,' amid competition for leadership among labor unions, the Ministry of Economy and Finance, and the Ministry of Planning and Budget.

Historical examples of countries like Spain, Portugal, and the Netherlands, which possessed abundant resources but lacked inclusive institutions, falling into the 'curse of plenty' by squandering wealth on luxury, consumption, inflation, and industrial collapse serve as a warning to South Korea. In the 16th century, Spain and Portugal enjoyed immense wealth from the gold and silver pouring in from the New World, but without inclusive institutions, they failed to convert this exploitative wealth into future assets, scattering it through luxury, consumption, and war. Crippling inflation also led to the collapse of domestic manufacturing and agriculture. The Netherlands, after discovering a large natural gas field in 1959, experienced the 'Dutch disease,' where its currency's value soared due to the influx of wealth, rendering its existing manufacturing industries uncompetitive and leading to their downfall.

In contrast, in the 18th century, Britain established inclusive institutions such as the 'Patent Act' and the protection of private property as large commercial wealth flowed in, providing a legal safety net for innovators to accumulate wealth. The influx of capital was transformed into the engine of the Industrial Revolution. Upon the discovery of North Sea oil in 1969, Norway learned from the Netherlands' failure, creating a sovereign wealth fund from its oil revenues to invest in overseas assets, adopting a strategy of protecting the principal and investing for the future under strict fiscal rules.

The answer to how to invest the excess wealth of the AI era can be found in historical lessons and the experiences of global leaders. First, instead of simple cash handouts, citizens should be equipped with 'AI weapons.' Similar to Malta's free AI service support or Singapore's 'SkillsFuture,' funds should be provided to citizens' lifelong learning accounts to invest in strengthening future competencies like AI, data analysis, and coding. Cash handouts end as one-time consumption, but competencies invested in citizens' minds become a generational competitive edge. In line with the AI revolution, society must transform to enable young people to create opportunities themselves rather than waiting for stable jobs. Fostering an environment that resolves housing issues for entrepreneurs and embraces failure, like France's 'Station F,' becomes an engine of innovation.

The ultimate destination for excess wealth should be focused on rebuilding the nation's physical infrastructure. Comprehensive replacement of transmission and distribution networks to accommodate data centers and expansion of carbon-free power infrastructure like SMRs will form an insurmountable entry barrier for other nations. The institutional framework must be established before the vehicle of a sovereign wealth fund. The government is discussing the creation of a Korean-style sovereign wealth fund worth 30 trillion won, financed by the excess semiconductor tax revenue. Norway's sovereign wealth fund, a historical success, has grown to approximately 3,250 trillion won over 30 years, thanks to three strict principles: withdrawals only within the fund's expected rate of return, mandatory parliamentary approval for withdrawals, and independence from politics through management by the central bank.

South Korea possesses world-class technology related to AI's core infrastructure: semiconductors, power grids, and data centers. Strategic investment through a sovereign wealth fund is necessary to defend and nurture these cutting-edge domestic industries against China's fierce pursuit. However, before establishing such a fund, institutions guaranteeing strict fiscal rules and political independence, akin to Norway's, must be put in place. When these institutional safeguards are established, the excess tax revenue will become a robust foundation for South Korea's future prosperity, rather than a 'curse of plenty.'