The government has proposed a budget of 820.9 trillion won for next year, marking an increase of 93 trillion won from this year's main budget, with a record growth rate of 12.8%. The plan focuses on investing the increased tax revenue from the semiconductor boom into artificial intelligence (AI), youth initiatives, and regional development.
On September 1, President Lee Jae-myung chaired a Cabinet meeting at the Blue House, where the '2027 Budget Proposal' was approved. This budget represents the first main budget overseen entirely by the Lee Jae-myung administration.
The 12.8% increase in total expenditures surpasses the 10.6% recorded during the global financial crisis in 2009. The previous highest increase was 10.6% in 2009, followed by 9.5% in 2019, 9.1% in 2020, and 8.9% in both 2021 and 2022.
Park Hong-keun, Minister of the Planning and Budget Office, explained in a pre-briefing that the budget aims to strategically invest the valuable tax revenue from the semiconductor boom into a comprehensive economic and social system overhaul, moving beyond existing frameworks.
The significant increase in tax revenue from the thriving semiconductor industry is cited as the basis for next year's fiscal expansion. Total revenue is projected to reach 880.8 trillion won, an increase of 205.6 trillion won (30.4%) from this year. National tax revenue is expected to rise from 390.2 trillion won to 584.4 trillion won, an increase of 194.2 trillion won, driven by higher corporate and income taxes due to improved semiconductor market conditions.
The government plans to expand its budget for three major projects—semiconductors, physical AI, and AI data centers—from 10.8 trillion won to 21.3 trillion won, a 97.2% increase. Investment in semiconductors will rise from 1.3 trillion won to 3.4 trillion won, and a special account of 2.6 trillion won will be established to enhance the competitiveness of the semiconductor industry.
To develop frontier-level AI models, the government will secure 10,000 high-performance graphics processing units (GPUs) and introduce over 2,000 domestic AI robots in defense, police, firefighting, caregiving, and agriculture sectors. Additionally, 2.1 trillion won will be allocated to expand related infrastructure, including power, water, and industrial land.
Support for youth at various stages of growth will increase from 28.2 trillion won to 43.3 trillion won, a 53.5% rise. The plan includes support for 720,000 job training and work experience opportunities and the provision of 106,000 preferred housing units for young people. The income requirements for the Youth Future Savings program will be eliminated to allow all young people to participate, and 20,000 public rental housing units will be newly supplied in transit-oriented areas.
To bolster future growth engines, 62.8 trillion won will be allocated for investments in advanced strategic industries, energy transition, startups, small and medium-sized enterprises, and cultural industries. The budget for addressing 'K-shaped polarization' to support regions, small businesses, farmers, and vulnerable groups will increase from 85.7 trillion won to 117.1 trillion won.
The government plans to save part of the additional tax revenue in a future response fund rather than spending it all in one year. The fund's operational scale for next year is set at 162.3 trillion won, with 45.4 trillion won earmarked for projects in youth, growth drivers, local development, education, and talent. Of the total, 104.4 trillion won will be managed as reserve funds to prepare for future tax fluctuations and fiscal needs, while 12.5 trillion won will be used to reduce new national bond issuance.
Despite this expansionary fiscal policy, the government anticipates improvements in fiscal indicators. The fiscal deficit is expected to shrink significantly from 3.9% of GDP this year to 0.1% next year, with the deficit amount decreasing from 107.8 trillion won to 3.1 trillion won.
National debt is projected to rise from 1,413.8 trillion won to 1,519.8 trillion won, an increase of 106 trillion won, but the national debt-to-GDP ratio is expected to decrease from 51.6% to 48.3%, a drop of 3.3 percentage points.
Alongside expenditure increases, the government will also implement structural adjustments. It plans to cut discretionary spending by a record 38.6 trillion won and eliminate over 2,100 projects, which account for more than 10% of all fiscal projects. Mandatory expenditures, including education grants, local grants, and unemployment benefits, will also see a reduction of 69 trillion won.
Minister Park stated, “Through today’s bold fiscal investment, we will pave the way for growth, establishing a virtuous cycle of 'active fiscal policy and economic growth' that strengthens our fiscal foundation.”
* This article has been translated by AI.
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