Gov't proposes record 821 tln-won budget for 2027 to boost growth

(ATTN: RECASTS throughout with details)
By Kang Yoon-seung

SEOUL/SEJONG, Sept. 1 (Yonhap) -- The South Korean government on Tuesday unveiled a 2027 budget proposal calling for record spending of 821 trillion won (US$595 billion) to address structural challenges, such as the low birthrate and regional decline, while sustaining the country's momentum in artificial intelligence (AI).

The proposal, announced by the Ministry of Planning and Budget at a Cabinet meeting, represents a 12.8 percent increase from the 728 trillion won budgeted for this year, the highest growth rate on record.

"The 2027 budget is the first to be formulated entirely under our administration. It is a fiscal investment plan designed to deliver tangible results on our policy agenda," Budget Minister Park Hong-geun said at a press briefing on the proposal last week.

"It goes beyond setting out spending plans for next year and will serve as a blueprint for South Korea's future amid intensifying global competition in the AI sector," Park added.

"The valuable tax revenue generated by the semiconductor boom will be strategically invested to drive innovation across the country's economic and social systems, breaking away from existing frameworks," he added.

During the announcement, the government also provided details of the Future Fund, which will be financed separately with "windfall revenue" generated by the global semiconductor boom. The fund will total 162.3 trillion won in 2027.

The budget ministry earlier introduced the concept of "windfall revenue," referring to tax revenue exceeding its long-term trend due to structural economic changes or significant economic fluctuations, such as an industrial supercycle.

"The Future Fund is a strategic investment platform designed to channel substantial tax revenue into productive areas, while improving the efficiency of the country's fiscal management," Park said.

The government will spend 45.4 trillion won from the Future Fund on four major pillars next year, namely youth, growth engines, regional economies and education.

Under the 2027 budget proposal, the government also vowed to proactively restructure around 108 trillion won in spending by reducing or eliminating unnecessary and inefficient projects.

"We will review all state-funded projects from the ground up and proactively reduce or terminate nonessential projects so the budget can be directed to areas where it is most needed," Park said.

Programs subject to restructuring include underperforming projects, similar or overlapping initiatives administered by different ministries and those requiring an overhaul to reflect changing economic and social conditions.

In terms of spending, the government will allocate 21.3 trillion won on AI projects in 2027, nearly double this year's 10.8 trillion won, to support three megaprojects involving semiconductors, physical AI and AI data centers.

"We will seek to expand production bases and build ecosystems to secure a competitive edge in core technologies," Park said. "We will provide full support for building essential infrastructure, including electricity and water supplies, and industrial complexes, to ensure investment in the three megaprojects proceeds without delay."

Another 62.8 trillion won, up 22.7 percent from this year, will be spent in 2027 to secure new growth engines beyond semiconductors, including nuclear fusion, small modular reactors (SMRs), quantum technology, aerospace and advanced biotechnology.

Around 43.3 trillion won will be used to support young people at every stage of life in areas ranging from education, employment and entrepreneurship to asset building, housing, marriage, childbirth and childcare.

The government will also consolidate and expand various subsidies available to young people for marriage, pregnancy and childcare to ease their financial burden.

The 2027 budget also includes 117.1 trillion won to address regional disparities, up 36.6 percent from this year.

"We will ensure the gains from economic development are shared by everyone, including small business owners, people working in agriculture and fisheries, and other vulnerable workers," Park said.

Meanwhile, spending on industry, small and medium-sized enterprises, and energy will jump 29.7 percent to 41.2 trillion won.

Spending on culture, sports and tourism will rise 20.4 percent to 11.6 trillion won in 2027.

The government will also allocate 39.5 trillion won to research and development projects, up 11.2 percent from this year.

Education spending will rise 10.8 percent to 110.7 trillion won.

The government said total revenue is expected to reach 880.8 trillion won in 2027, up 30.4 percent from 2026, driven by the continued boom in the global chip industry.

The national debt is expected to reach 1,519.8 trillion won in 2027, up from 1,413.8 trillion won in 2026. The debt is expected to account for 48.3 percent of gross domestic product, down from 51.6 percent in 2026.

The managed fiscal balance is expected to improve sharply, with its deficit-to-GDP ratio narrowing by 3.9 percentage points from a year earlier to 0.1 percent.

Under the 2026-30 fiscal management plan, the government vowed to expand spending by an annual average of 8.4 percent.

The finance ministry said the government will focus on significantly expanding expenditure next year to advance its vision of building an "irreplaceable Republic of Korea," using South Korea's official name.

From 2028 onward, South Korea plans to gradually slow the pace of spending growth as a virtuous cycle in the economy takes root.

"Next year's budget seeks to achieve the dual goals of promoting economic growth and improving fiscal soundness," Park added.

colin@yna.co.kr
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