By Cynthia Kim, Joyce Lee and Heejin Kim
SEOUL, Sept 1 (Reuters) - South Korea on Tuesday unveiled its most aggressive fiscal spending plan on record, setting total government expenditure for 2027 at 821 trillion won ($596.92 billion) to strengthen the country's technological edge amid the global AI race.
In its annual budget proposal, the budget ministry said the spending plan represented a 12.8% rise from 2026, marking the largest year-on-year increase in the country's history.
The proposal signals
a shift in Asia’s fourth-largest economy under President Lee Jae-myung, who has championed an expansionary fiscal policy since taking office in June last year, pivoting away from three years of fiscal austerity under his predecessor.
The historic spending increase is possible thanks to a windfall from the country's semiconductor industry.
Chipmakers Samsung Electronics <005930.KS> and SK Hynix <000660.KS> are generating unprecedented profits driven by global demand for high-bandwidth memory (HBM) used in the AI boom.
Total tax revenue is seen increasing 40.7% next year to 584.4 trillion won, with corporate tax receipts alone projected to more than double to 216.7 trillion won.
That revenue will help reduce South Korea's debt-to-GDP ratio by 3.3 percentage points to 48.3%, down from 51.6% estimated for this year.
"The government plans to deploy fiscal resources preemptively and expansively, backed by the amplified national tax revenues projected for 2026 and 2027," Budget Minister Park Hong-keun told a news conference.
"From 2028 onward, a period when these fiscal investments are expected to yield tangible economic returns, we will gradually stabilise the spending growth rate, tapering it down in stages to around the 5% level by 2030."
The government earmarked 2.6 trillion won for a special semiconductor budget, Park said at the cabinet meeting, where the national budget for 2027 is scheduled to be reviewed and adopted.
It also proposed 3.4 trillion won in spending for a nuclear-powered submarine programme and other strategic weapons, presentation material during the meeting showed.
The budget proposal will require parliamentary approval.
Meanwhile, President Lee Jae Myung said on Tuesday the economy is at a point where an interest rate rise is unavoidable, risking denting growth potential at a time the socially disadvantaged are feeling the impact of higher borrowing costs.
FUTURE RESPONSE FUND
Rather than channeling its projected 162.3 trillion won of excess tax revenue into short-term spending, the government plans to direct it into a strategic endowment called the Future Response Fund, designed for long-term investments.
The fund will deploy 45.4 trillion won next year to expand initiatives in youth welfare, future growth engines and specialised education programmes.
For 2027, a core pillar of spending will be to support next-generation semiconductor infrastructure.
The government has allocated 21.3 trillion won for industrial water systems, power grids and logistics networks to strengthen national chip manufacturing and advance critical technology infrastructure nationwide.
Part of the tax windfall will be allocated to reduce government bond issuance. Total government bond sales for next year will drop to 222.8 trillion won, down from 225.7 trillion won in this year’s budget.
Net bond issuance, which reflects the creation of fresh sovereign debt, will decline even more sharply by 13.1 trillion won to 96.3 trillion won, down from 109.4 trillion won this year.
($1 = 1,375.3900 won)
(Reporting by Jack Kim, Heejin Kim and Joyce LeeEditing by Ed Davies)
