South Korea Plans Record $761.6 Billion Budget to Lead the AI Race

South Korea announced its largest government spending plan ever on September 1, setting its 2027 budget at 821 trillion won — equal to about $761.6 billion. The government wants to use this money to boost the country's technology industry and stay competitive in the global race to develop artificial intelligence, or AI. The plan was put forward under President Lee Jae-myung, who took office in June 2025 and believes the country should spend more to grow its economy.

The new budget is 12.8 percent higher than the 2026 budget, which makes it the biggest year-over-year jump in South Korea's history. Before President Lee took office, the government had spent three years cutting back on spending to save money. Now, Lee is changing course and investing heavily in technology and infrastructure. This marks a major shift for Asia's fourth-largest economy.

A big reason the government can afford this spending boost is that South Korean tech companies are making huge profits. Samsung Electronics and SK Hynix — two of the world's top chip makers — are earning record amounts of money. Global demand for special computer chips called high-bandwidth memory, or HBM chips, has skyrocketed because AI systems need them to work. These profits are flowing into the government as tax revenue.

In fact, the government expects to collect 40.7 percent more in taxes in 2027 than it did in 2026. Corporate tax receipts — the money companies pay in taxes — are expected to more than double to 216.7 trillion won. This flood of tax money will help South Korea lower the amount it owes compared to the size of its economy. The country's debt-to-GDP ratio is expected to drop from 51.6 percent to 48.3 percent, a sign that the country is becoming more financially healthy.

Even with all the extra spending, South Korea plans to borrow less money in 2027 than it did in 2026. The government will sell fewer government bonds, which are a way countries borrow money from investors. Net bond sales — meaning the creation of brand-new debt — will fall by 13.1 trillion won. This is meant to show that the government is being careful not to take on too much debt even while spending more.

However, investors in the bond market were not fully satisfied. After the budget was announced, the interest rate on South Korea's 10-year government bond rose by 6.5 basis points to 4.378 percent. This happened because investors had hoped the government would cut bond sales by even more. Analyst Kong Dong-rak from Daishin Securities said the reduction in new debt is helpful, but added that adjustments to reduce long-term bonds will be needed to fully calm the market.

Instead of spending all its extra tax money right away, South Korea plans to put 162.3 trillion won into a special fund called the Future Response Fund. This fund is designed to make long-term investments rather than just quick fixes. In 2027, the fund will spend 45.4 trillion won on programs to help young people, build future industries, and improve education. The goal is to make sure South Korea stays strong and competitive for decades to come.

A major focus of the new budget is building better infrastructure to support the semiconductor, or chip-making, industry. The government has set aside 21.3 trillion won to improve water systems, power grids, and transportation networks used by chip factories. Another 2.6 trillion won is earmarked as a special semiconductor budget. These investments are meant to make South Korea one of the world's leading centers for chip manufacturing.

The government also plans to spend 3.4 trillion won on national defense projects, including a nuclear-powered submarine program and other advanced weapons. President Lee noted that an interest rate increase may be unavoidable, which could make it harder for families with loans to keep up with payments. The full budget still needs to be approved by South Korea's parliament before it becomes official.