South Korea proposes record US$597bil 2027 budget to supercharge AI investment

Seoul announced on Tuesday its most expansive budget ever, totaling an unprecedented 821 trillion won (US$597 billion) for 2027. This bold spending plan aims to boost South Korea's technological prowess in the global AI race. The budget represents a 12.8% increase from the previous year, which is the largest year-on-year rise in the nation's history.

President Lee Jae-myung, who took office in June of the prior year, has been promoting an expansionary fiscal policy, marking a shift from three years of austerity following his predecessor's tenure. This substantial budget boost is made possible by a windfall from the country's thriving semiconductor industry. Major chip manufacturers Samsung Electronics and SK Hynix are experiencing unprecedented profits due to the global demand for high-bandwidth memory (HBM) utilized in the AI revolution.

Corporate tax receipts are expected to nearly double, contributing to a reduction in South Korea's debt-to-GDP ratio by 3.3 percentage points to 48.3% by 2027. Budget Minister Park Hong-keun stated that the government will employ fiscal resources proactively and expansively, leveraging the anticipated national tax revenue surge.

From 2028 onwards, the spending growth rate will gradually stabilize, tapering down to around 5.0% by 2030. The budget includes a dedicated 2.6 trillion won for a special semiconductor fund, 3.4 trillion won for a nuclear-powered submarine program and strategic weapons, and a strategic endowment called the Future Response Fund. While the government proposes to channel excess tax revenue into this long-term investment fund, President Lee Jae-myung warned that an interest rate rise might be necessary, potentially impacting growth potential as the economically disadvantaged face the consequences of higher borrowing costs.