The government will create and set aside a 162.3 trillion won future response fund in the 2027 budget, and invest 45.4 trillion won of it in four areas: youth, growth engines, regions and education and talent. The budget for “three megaprojects plus AI” combining semiconductors, physical AI and AI data centres will rise 97.2 percent to 21.3 trillion won from 10.8 trillion won.

The government approved the 2027 budget bill and the 2026-2030 national fiscal management plan at a Cabinet meeting on Monday. The budget bill will be submitted to parliament on Wednesday. Total spending for 2027 is set at 820.9 trillion won, up 12.8 percent from the 2026 main budget of 727.9 trillion won. The Ministry of Economy and Finance said the previous highest growth rate in total spending was 10.6 percent in 2009. Total revenue is projected at 880.8 trillion won, up 30.4 percent. National tax revenue will increase by 194.2 trillion won to 584.4 trillion won from 390.2 trillion won, and the ministry cited higher corporate and income taxes on the back of a semiconductor upturn.

The ministry defined the future response fund as a strategic investment platform to use large-scale tax revenue for productive spending and as a fiscal stabilisation tool to bolster fiscal capacity.

The fund totals 162.3 trillion won, split into 52.9 trillion won for four project accounts and 109.4 trillion won for a general account. Among the project accounts, the growth-engine account that includes semiconductor and AI investment totals 14.2 trillion won. It is followed by a regional account of 15.3 trillion won, a youth account of 13.3 trillion won and an education and talent account of 10.1 trillion won. From the general account, 12.5 trillion won will be used to reduce new government bond issuance.

The growth-engine account newly includes 4.7 trillion won for frontier-class AI development, 250 billion won for “AI for all”, 300 billion won for manufacturing tacit-knowledge R&D and 300 billion won for the AI data centre (AIDC) ecosystem. The budget for an autonomous-driving demonstration city will rise to 800 billion won from 100 billion won, and next-generation launch vehicles will increase to 300 billion won from 100 billion won. Items for power and water include 500 billion won in equity investment in Korea Electric Power Corp and 100 billion won for water supply to the semiconductor industrial complex in the southwest, newly allocated.

Surplus funds total 104.4 trillion won. They comprise 96.9 trillion won in the general account, 5.0 trillion won in the regional account and 2.5 trillion won in the education and talent account. The ministry said if a policy need arises, it can respond by changing the fund without a supplementary budget. If domestic tax revenue rises in a revenue re-estimate in September 2026, the increase will be additionally set aside.

Growth-engine account at 14.2 trillion won... surplus funds at 104.0 trillion won

In the growth-engine account, the semiconductor budget will rise to 3.4 trillion won from 1.3 trillion won. Integrated fiscal support of 1.5 trillion won was allocated to the semiconductor cluster in the southwest, and the ministry said it will provide 6.0 trillion won in support for the project over four years. The southwest cluster is scheduled to begin construction in 2028, and 300 billion won will be spent in 2027 to relocate Gwangju military airfield, which has been confirmed as the site. In the Seoul metropolitan area, 100 billion won was allocated for infrastructure to enable early operation of fabs in Yongin and Pyeongtaek. R&D for core semiconductor technologies will rise to 546.6 billion won from 461.2 billion won.

The physical AI budget will rise to 3.1 trillion won from 900 billion won. Some 500 billion won was allocated for field demonstrations in eight areas including manufacturing, smart factories and construction, and more than 2,000 domestically made AI robots will be introduced into the public sector. The budget for the AIDC industry ecosystem will rise to 500 billion won from 200 billion won.

Some 2.1 trillion won will be spent on power, water and industrial complex infrastructure. Of 1.5 trillion won for power, building transmission-linked energy storage systems totals 572.4 billion won, and demand-attraction substations total 65.8 billion won. With an equity injection into KEPCO, its capital will rise to 3.7 trillion won from 3.2 trillion won. In water, 119.6 billion won was allocated to the semiconductor industrial complex in the southwest and 8.1 billion won to advanced industries in the Chungcheong region.

The fund’s resources will come from reductions in mandatory spending. The government said it will cut mandatory spending by 69.0 trillion won. By restructuring the domestic-tax linkage of local education fiscal grants for the first time in 55 years, it will set aside 32.5 trillion won, and it will set aside 30.5 trillion won from local allocation taxes into the future response fund. It will cut discretionary spending by 38.6 trillion won and abolish more than 2,100 projects, which account for at least 10 percent of all projects.

The ministry projected the 2027 government debt ratio at 48.3 percent of gross domestic product, down 3.3 percentage points from 51.6 percent in 2026, and said the managed fiscal balance deficit will narrow to 0.1 percent of GDP. It plans to keep the managed fiscal balance within 3.0 percent of GDP through 2030 and manage the debt ratio in the high 40 percent range.