South Korea proposes a record 12.8% budget increase for 2027 to boost growth potential and address structural challenges

(1) On Tuesday, the South Korean government submitted its 2027 budget proposal to the cabinet, suggesting national spending grow by 12.8% year-on-year to 820.9 trillion won (approximately $600.38 billion), marking the biggest annual increase since 2009 (10.6%). (2) The plan aims to address weakened growth potential caused by structural challenges such as low birth rates and an ageing population, while ensuring the benefits of the AI-driven semiconductor boom are more widely shared. The budget focuses on investments in R&D for new growth engines such as AI infrastructure, semiconductors, autonomous driving, and next-generation space rockets. (3) The government plans to set up a national “future response” fund to provide financing for the above projects and other potential future expenditures. The source of funding will come from the expected surge in corporate and income tax revenue driven by the AI boom. At the same time, the government will step up debt repayments and reduce the issuance of government bonds. (4) It is expected that by 2027, the national debt-to-GDP ratio will drop from 51.6% in 2026 to 48.3%, and the fiscal deficit as a percentage of GDP will narrow from 3.9% this year to 0.1% next year. The budget proposal still requires approval by the National Assembly, which is controlled by the ruling party.