South Korea will increase its 2026 government spending by 8.1% to 728 trillion won (US$546 billion), the fastest rise in four years, according to the country’s finance ministry.

The proposed budget, announced on August 29, 2025, prioritizes investment in AI and aims to stimulate economic growth under President Lee Jae Myung’s administration.

The plan includes a record 19.3% rise in research spending to 35.3 trillion won (US$25.4 billion) for AI and a 14.7% rise to 32.3 trillion won (US$23.25 billion) for industrial support, especially for exporters facing new US tariffs.

Social welfare spending will rise 8.2% to 269.1 trillion won (US$193.75 billion), with a focus on measures to address the country’s low birthrate.

The budget requires approval from the National Assembly.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ South Korea’s fiscal expansion represents a dramatic departure from historical norms

The projected 4.0% fiscal deficit for 2026 marks a significant shift from South Korea’s traditional fiscal conservatism1.

This deficit level is more than four times higher than the country’s historical average of -0.89% of GDP recorded from 1988 to 20242.

The 8.1% budget increase for 2026 represents the steepest spending growth in four years, signaling a fundamental change in economic policy approach under President Lee Jae Myung’s administration1.

This expansionary stance contrasts sharply with the previous three years under conservative predecessor Yoon Suk Yeol, who prioritized fiscal sustainability over growth stimulus.

The willingness to let the debt-to-GDP ratio climb from 48.1% to 51.6% in just one year demonstrates how seriously policymakers view the need for economic transformation1.

2️⃣ Record R&D spending reflects global competition for AI leadership

South Korea’s 19.3% increase in research spending to 35.3 trillion won ($25.4 billion) for AI investments represents one of the most aggressive government AI funding commitments globally1.

This surge parallels similar patterns seen in other major economies, where the U.S. federal government increased AI contract funding by 150% from $261 million to $675 million in recent years3.