image copyrightSeongJoon Cho/Bloomberg via Getty Images
The Korean government has set next year's budget at 820.9 trillion won, the largest ever. It is an increase of 93 trillion won compared to this year's original budget, and is more than double the size compared to 10 years ago.
Based on the expectation that taxes will be raised further due to the semiconductor boom, the plan is to expand investment in AI and semiconductors as well as support for people's livelihoods such as marriage, childbirth, and housing.
President Lee Jae-myung emphasized that the budget was for 'growth for all,' but the ruling and opposition parties presented conflicting evaluations, calling it 'investment for the future' and 'expenditure that increases the fiscal burden', respectively.
Next year's budget, how much has it increased?
In his 2027 budget speech held at the National Assembly on the 2nd, President Lee announced that next year's total expenditures were set at 820.9 trillion won, a 12.8% increase from this year.
This is 93 trillion won more than this year’s main budget of 727.9 trillion won, which was the previous maximum. This is the first time that annual government spending exceeds 800 trillion won.
10 years ago, in 2017, Korea's main budget was 400.5 trillion won. At that time, it exceeded 400 trillion won for the first time, and next year's budget plan is about 2.05 times larger than that. Based on the amount that does not reflect inflation, it has more than doubled in 10 years.
However, next year's increase rate of 12.8% is based on the main budget, not expenditures including this year's supplementary budget.
President Lee described this budget as a 'future preoccupation budget' that secures future growth engines and a 'growth expansion budget' that connects the country's growth to the growth of its people.
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He said that although the Korean economy is showing clear signs of recovery, the shadow of inequality and polarization is still deep. This means that growth opportunities and achievements concentrated in specific regions, classes, and a small number of companies must be transformed into ‘growth for all’ that is equally enjoyed by all regions and citizens.
In the speech that lasted about 27 minutes that day, Democratic Party members responded by applauding about 30 times. On the other hand, People Power Party lawmakers watched the speech with signs posted on their laptops with phrases such as 'Stop intimidating the judiciary'.
The budget will be confirmed after deliberation by the National Assembly.
Where do you get the money to spend?
The background to the large-scale expansion in spending is the prospect of increased tax revenues due to the semiconductor boom.
The government predicted next year's national tax revenue to be 584.4 trillion won. This is an increase of 194.2 trillion won compared to this year’s original budget. It is calculated that corporate and income taxes will increase significantly as the performance of semiconductor companies improves.
The total revenue forecast for next year, including non-tax revenue such as income from social security funds, is 880.8 trillion won. Compared to this year's main budget, revenue is 205.6 trillion won and expenditure is 93 trillion won more.
However, this is not money already secured, but revenue expected to be collected next year, and may vary depending on actual corporate performance and economic trends.
President Lee emphasized the role of the Future Response Fund to utilize increasing tax revenues.
He announced that he would narrow the gap and lay the foundation for growth by investing additional tax revenue intensively in four areas: youth, future growth engines, local regions, education, and talent.
The government plans to create a fund worth 162.3 trillion won based on additional tax revenue from next year's domestic tax revenue that exceeds the growth trend of the past 10 years.
Of this, 45.4 trillion won will be spent on investments in four areas, and 12.5 trillion won will be used to reduce the amount of new government bond issuance. The remaining 104.4 trillion won is planned to be set aside as spare funds to prepare for future tax revenue shortfalls.
President Lee described the Future Response Fund as a financial stabilization device that responds to changes in tax revenue. The idea is to store some of it when a lot of taxes are collected and use it when income becomes insufficient.
Photo source: News1
During the process of explaining the issuance of government bonds, the speech was briefly interrupted due to protests from opposition party members.
When President Lee explained that most of the issued government bonds were used to repay existing government bonds, resulting in little net increase, protests arose from the People Power Party's seats, asking, "Why are we issuing new government bonds?"
President Lee stopped speaking, saying, “If you have anything to say, please say it and I will finish it.” Afterwards, as shouts of “Resume the trial” continued, he asked for a special opinion and asked if he could continue his speech. When Democratic lawmakers answered “yes,” they continued their speech.
President Lee ‘It is right to invest for the future’
In a preliminary meeting at the National Assembly held prior to his speech, President Lee expressed his position that the increased financial resources needed to be utilized for future investments.
He said, “There is some validity to the People Power Party’s argument that increased finances should be used to repay debt,” but added, “When looking into the future, if it is useful in laying the foundation for sustainable growth, it is right to invest for the future.”
In his address to the city, he emphasized that growth and distribution should not be viewed as a matter of either/or.
He presented policies for jobs, microfinance, and housing stability as the 'three major livelihood projects' and explained that policies to reduce social gaps are the basis for increasing the effectiveness of investments in future industries.
President Lee said that these policies will serve to establish a social protection system without blind spots and lay the foundation for sustainable growth.
President Lee proposed expanding support for marriage, childbirth, and childcare as a way to support people's livelihoods to reduce social gaps.
The plan is to provide newlyweds with a wedding subsidy of 1 million won, and up to 20 million won in child support support for families giving birth.
A plan was also proposed to introduce a basic children's allowance that integrates child allowances and parental benefits, paying 200,000 won per month until the age of 12, and 300,000 won for preferential areas.
They announced that they would change major social security benefits so that eligible people can receive them without having to apply separately. He said he would also increase major salaries such as living allowance and basic pension.
To support youth housing, we promised to increase the number of public rental housing units to 106,000 and fully support tuition at 30 local national universities.
As a plan to support small business owners and the self-employed, a plan to issue 25.6 trillion won of local love gift certificates and 4.5 trillion won of Onnuri gift certificates was introduced. This is the amount of gift certificates issued and is distinct from the budget amount borne by the government.
Investment in AI and semiconductors nearly doubled
In the field of future industries, they announced that they would significantly increase investment in artificial intelligence (AI) and semiconductors.
President Lee said he would invest 21.3 trillion won, nearly double this year's amount, into AI and 'three mega projects' including semiconductors, physical AI, and AI data centers.
Physical AI refers to artificial intelligence that moves and performs tasks in a real physical environment like a robot.
President Lee emphasized that he will also secure the next-generation growth engine that will lead the Korean economy after semiconductors.
It was announced that the research and development (R&D) budget was set at 39.5 trillion won, an increase of 4 trillion won from this year. The plan is to expand investment focusing on future leading technologies.
He said he would also speed up the energy transition.
They explained that they would invest 2.8 trillion won in expanding renewable energy, including the expansion of 'Sunshine Income Villages' where residents share solar power generation profits, and increase the number of electric vehicle subsidies to 430,000 vehicles.
A public institution relocation plan was also presented to reduce the gap between regions.
President Lee said, “44 central administrative agencies in the metropolitan area will be relocated to Sejong in stages starting next year, and plans for relocation of public institutions in the metropolitan area to regional areas will be finalized within the year and begin next year.”
In addition, he said he would establish a new growth engine special subsidy and create regional growth bases according to the '5 poles and 3 special' plan, which divides the country into five super-metropolitan regions and three special self-governing provinces.
President Lee explained that while preparing this budget, he applied the principles of investing boldly but reducing inefficient spending, prioritizing direct financial support over tax cuts, and giving preference to local areas.
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The defense budget was set at 73.3 trillion won, an 8.2% increase from this year.
President Lee announced that he would secure key forces, including nuclear-powered submarines and the Korean fighter KF-21, necessary for the early return of wartime operational control.
He explained that he will also pursue military reorganization, including building a manned and unmanned complex system using AI, robots, and drones.
President Lee said that uncertainty in the world situation and economic environment is increasing and called for cooperation between the government, the National Assembly, and the ruling and opposition parties.
He said, “The key is execution and speed,” and requested that next year’s budget and accompanying bills be processed by December 2, the legal deadline.
He said, “The government will listen with an open attitude during the deliberation process and actively reflect better alternatives.”
The ruling party “future preoccupation budget”… Opposition party "fiscal gamble"
Meanwhile, the ruling and opposition parties' evaluations of the city administration speech were mixed.
Park Seong-joon, chief spokesperson of the Democratic Party of Korea, said at a National Assembly briefing that day, "It is an irreplaceable budget plan that will preoccupy the future and make Korea a world-leading country."
At the same time, he announced that he would review the budget with a focus on recovering the people's livelihood and the economic recovery that will lead to the results of growth being reflected in people's daily lives.
On the other hand, Park Seong-hoon, senior spokesperson for the People Power Party, criticized in a commentary that day, “This is an irresponsible financial gambling declaration that puts the future of the Republic of Korea at stake.”
He pointed out the fiscal burden, saying that the national debt will exceed 1,500 trillion won next year, and argued that the Future Response Fund is a fund for the government's generous spending.
Even in the plenary room, the conflicting reactions of the ruling and opposition parties continued until the end of the speech.
Some People Power Party lawmakers left the plenary session during the speech, and after the speech ended, all People Power Party lawmakers except Representative Cho Kyung-tae left.
While Democratic Party lawmakers stood up, applauded, shook hands with President Lee, or took pictures with him, Rep. Cho stayed in his seat and exchanged greetings with President Lee.
