Korea drafts record budget proposal aimed at using chip boom to boost growth

The Korean government has unveiled an unprecedented 820.9 trillion won ($601 billion) budget proposal for next year, reflecting a staggering 12.8% increase from this year's initial budget. This marks the second consecutive year of expansionary fiscal policy under the Lee administration, with the 93 trillion won ($64 billion) hike constituting the largest absolute and percentage rise in budget history.

The surge in spending is fueled by the semiconductor supercycle, with tax revenue from chipmakers projected to surge by nearly 50% to 584.4 trillion won ($427 billion). Rather than repaying debt, 162.3 trillion won ($119 billion) of this windfall will be directed into a new Future Response Fund, earmarked for investments in four key areas: young people, growth engines, balanced regional development, and education and talent.

The government anticipates that total revenue will reach 880.8 trillion won ($644 billion) next year, a 30.4% increase from the original budget, while total expenditure is projected to rise by an even larger 35.6% to 1.01 quadrillion won ($739 billion). Despite the substantial spending increase, Korea's fiscal balance is projected to post a surplus of 59.9 trillion won ($43.9 billion), equivalent to just 0.1% of GDP. This represents a significant improvement from this year's deficit of 3.9% of GDP.

The government will channel 45.4 trillion won ($33.3 billion) from the Future Response Fund into initiatives supporting young people, growth drivers, equitable regional development, and education. Another 33 trillion won ($24.1 billion) will be allocated to address regional disparities. The remaining funds will be reserved for future contingencies or to bolster fiscal capacity in case of revenue fluctuations.