Korea plans 820 trillion won 'super budget' focused on AI and youth

Korea is preparing what officials are calling an unprecedented "super budget" for 2027, with total spending set to rise more than 12 percent to over 820 trillion won ($592.6 billion) as the government funnels booming semiconductor-driven tax revenue into artificial intelligence, regional development and youth support, according to exclusive reporting by the JoongAng Ilbo. 

Related ministries on Sunday said that the government is in the final stages of coordinating the budget. If the plan holds, it would represent an increase of more than 90 trillion won from this year's 728 trillion won, the largest single-year jump on record.

Officials plan to finalize and unveil the budget next week.

The new 'Future Response Fund'

The 2027 budget is expected to include about 40 trillion won in spending funded through the newly launched Future Response Fund, whose combined reserves for this year and next are projected at roughly 200 trillion won ー about a fifth of which is earmarked for next year's budget.

The fund automatically captures domestic tax revenue collected in a given year that exceeds the normal growth trend, rather than letting the government spend it all at once. That surplus — along with other sources like excess tax revenue, leftover settlement funds and returns on idle cash — is released into the following year's budget in installments, giving the government a cushion to fund priorities like AI and regional development without relying on debt.

Officials expect more than 50 trillion won in excess tax revenue this year and more than 100 trillion won next year.

Despite the spending increase, Korea's national debt as a share of GDP is projected to fall from 51.6 percent this year to about 48 percent next year, as the semiconductor boom pushes GDP close to 3 quadrillion won. Net issuance of government bonds next year is also expected to come in below what was projected under the government's medium-term fiscal plan.

AI transformation and seven growth engines

The 2027 fiscal budget's central themes are Korea's push toward an AI-driven economy and large-scale investment in the so-called SEED project, or the seven new growth engines the government has identified to lead the economy over the next one to two decades: small modular reactors, nuclear fusion, renewable energy, quantum technology, aerospace, advanced biotechnology and advanced supply chains.

The government plans to provide concentrated support across the full development cycle, from technology development to infrastructure, talent training and demonstration and commercialization. Notably, it is shifting its investment approach away from simple grants toward equity-style investment to prevent what some have previously criticized as indiscriminate support.

Youth and regional spending in focus

Public welfare spending is set to center on youth and regional support. One centerpiece is more than doubling the Youth Job Leap Incentive (translated), a subsidy for young people who take jobs outside the greater Seoul area, which consists of Seoul, Gyeonggi and Incheon.

Workers aged 34 or younger who take jobs at small- and medium-sized enterprises in designated population-decline areas such as Gochang County, North Jeolla, and Goseong County, South Gyeongsang, currently receive 300,000 won a month for up to two years, or up to 7.2 million won total. That amount is likely to more than double. Similar payments of 250,000 won and 200,000 won for workers in Gapyeong County, Gyeonggi, and Goseong County, Gangwon, are also set to more than double.

Because the subsidy requires at least six months of employment, the program is expected to cost about 1 trillion won next year.

To address youth unemployment, the government plans to expand the number and scale of job training programs, including the K-New Deal Academy, a corporate-led job training initiative.

It has also earmarked about 1 trillion won to raise the monthly stipend paid to jobseekers enrolled in the National Employment Support System — a program used mainly by young people that provides cash support and job-search assistance while they look for work — from 600,000 won this year to 650,000 won next year.

The government also plans to expand its three flagship megaprojects — a set of nationwide investment initiatives in semiconductors, physical AI and AI data centers meant to shift industrial growth away from the Seoul area — along with various regional infrastructure and job-support programs.

Childbirth and child rearing support

To support childbirth and child rearing, the government plans to consolidate the one-time cash voucher given to families when a child is born, the parental allowance and the child allowance into a single benefit with a higher payout.

The child allowance, currently 100,000 to 130,000 won a month, is expected to more than double. Eligibility, now capped at children under 9, will expand to those under 10 next year and eventually to those under 13 by 2030. The child allowance, currently 100,000 to 130,000 won a month, is expected to more than double, with eligibility — now capped at children under 9 — expanding to those under 10 next year and eventually to those under 13 by 2030.

The Ministry of Health and Welfare estimated in August last year that next year's child allowance would cost 2.44 trillion won, but the budget is now expected to exceed 5 trillion won given rising birth numbers and the planned expansion.

The government has also confirmed a long-sought National Assembly proposal to create the Our Child Independence Fund (translated), which would have the government make regular contributions to a fund opened at a child's birth ー building up a lump sum by adulthood.

A bill currently before the National Assembly would have the government match up to 100,000 won a month in parental contributions to a policy fund in a child's name. The government is considering applying the program starting with children born next year and limiting eligibility to households earning no more than 150 percent of the median income.

More support for regional universities and youth savings

Higher education investment will also rise sharply, drawn from the Future Response Fund, with all incoming students at nine flagship national universities outside Seoul receiving full state scholarships regardless of income.

The government plans to gradually expand the program to 30 regional national universities and is weighing eliminating tuition there altogether over the longer term, aiming to encourage students to choose local universities over Seoul-based schools and settle and find work in the regions after graduation.

Support for young people's asset-building will also expand significantly. Under the Youth Future Savings Account, people between 19 and 34 can deposit between 1,000 won and 500,000 won a month into a three-year account, and the government adds its own money on top of those deposits — currently only for those earning 60 million won or less a year. That income cap will be removed, opening the matching contributions to all participants regardless of income.

The Youth Culture Pass — a government benefit that gives young people money to spend on cultural activities like movies, live performances and books — will also expand. Currently, people aged 19 and 20 can receive a one-time benefit of 150,000 won, or 200,000 won outside the greater Seoul area. Starting next year, eligibility will expand to those up to 34 and make the benefit available annually.

The related budget will grow from 60 billion won this year to about 800 billion won next year.

Deep spending cuts elsewhere

To fund the sharp budget increase, the Ministry of Planning and Budget said it carried out intensive spending restructuring, aiming to save more than 50 trillion won through changes to local education subsidies and the basic pension.

Local education subsidies are currently tied to domestic tax revenue, under which next year's subsidies would rise by about 100 trillion won. But a new formula the government proposed Friday — tying subsidies instead to the nominal growth rate and the school-age population — would bring the total to 78.9 trillion won, a reduction of about 20 trillion won.

The basic pension is paid to the bottom 70 percent of income earners among people 65 and older; this year's eligibility threshold is 2.47 million won a month for single-person households and 3.952 million won for couple households — 96.3 percent and 94.1 percent of the median income for one- and two-person households, respectively. 

Starting next year, the government is likely to link the threshold to a set percentage of the median income across all households and gradually lower that percentage over time. It is also pursuing a plan to weight payments more heavily toward lower-income seniors, maintaining current benefit levels while distributing future increases by income level.

Some economists question the expansion

Still, some economists have raised concerns about the government continuing its expansionary fiscal stance for a second consecutive year — if the general budget's growth rate reaches double digits, it would be the first time since 2009, when it grew 10.6 percent.

"It's questionable whether spending needs to increase by double digits when the economy isn't freezing up the way it did during Covid-19," Kim Woo-chul, a taxation professor at the University of Seoul, said. "It doesn't make sense from a policy-mix standpoint for the government to sharply expand fiscal spending while the Bank of Korea is tightening."

BY KIM KYUNG-HEE, AHN HYO-SEONG, NAM SOO-HYOUN [[email protected]]