South Korea proposes record 820.9 tln-won 2027 budget to fuel AI, growth

The Future Fund will spend 45.4 trillion won next year on four pillars -- youth, growth engines, regional development and education and talent development -- while keeping 104.4 trillion won in reserves and using 12.5 trillion won to reduce planned government bond issuance. The government plans to allocate 21.3 trillion won to AI projects in 2027, nearly double this year's 10.8 trillion won, supporting three megaprojects involving semiconductors, physical AI and AI data centers. The science ministry separately seeks a record 29.6 trillion-won budget, up 24.5 percent, including 9.4 trillion won for AI transitions and investments in future technologies.

Defense spending would rise 8.2 percent to 73.27 trillion won, focused on the transfer of wartime operational control from the United States and the development of nuclear-powered submarines, the KF-21 fighter and AI- and drone-based forces. The unification ministry proposed 1.25 trillion won, up 0.82 percent, including 1.11 trillion won for inter-Korean cooperation and 24.7 billion won to resume the Gyeongwon railway project connecting Seoul to Wonsan; work on the line was halted in 2016 after North Korea's fourth nuclear test. The foreign ministry seeks 3.7 trillion won, with cybersecurity funding quadrupling to 15.5 billion won after a July cyberattack on a diplomatic academy exposed data on up to 10,000 diplomats and staff; its official development assistance budget is set to fall 1 percent to 2.16 trillion won.

Total revenue is projected at 880.8 trillion won, up 30.4 percent, while the managed fiscal balance deficit would narrow to 3.1 trillion won from 107.8 trillion won in 2026. National debt is expected to reach 1,519.8 trillion won, or 48.3 percent of gross domestic product, down from 51.6 percent. Spending on health, welfare and labor would rise 9.3 percent to 289 trillion won, education would increase 10.8 percent to 110.7 trillion won, and research and development spending would grow 11.2 percent to 39.5 trillion won. The government also pledged to restructure 108 trillion won in spending by eliminating underperforming and overlapping projects.

Some economists criticized the plan. "The Future Fund may evade parliamentary oversight," Yang Jun-sok, a professor at the Catholic University of Korea, told Yonhap. "If there is surplus revenue, it should be used to reduce the fiscal deficit and debt burden." Kang Sung-jin of Korea University said the move "strongly reflects an intention to spend fiscal resources." Kim Kwang-seok, a senior researcher at the Institute for Korean Economy and Industry, noted that the fund may violate the principle that the intended use of tax revenue should be specified when taxes are collected. Budget Minister Park Hong-geun said the fund's sustainability would depend on how South Korea responds to industrial shifts. "Nobody knows how the current semiconductor cycle, which is expected to last around three to five years, will play out. But we can make proactive investments and better prepare for such situations," he said.