Finance Minister Koo Yun-cheol speaks at a press briefing on the new administration’s 2026 budget plan at the government complex in Seoul on Thursday. (Ministry of Economy and Finance) South Korea will boost total spending to a record 738 trillion won ($534 billion) next year, up 8.1 percent from 2025, in a sweeping budget overhaul that redirects money to growth engines led by artificial intelligence.
The plan, approved by the Cabinet on Friday, includes a record 27 trillion won restructuring of low-performing programs, with the savings funneled into priority sectors.
Finance Minister Koo Yun-cheol said the strategy marks a pivot from simple expansion to “strategic fiscal management” that delivers results.
“We are now in the era of an AI transformation, and if we fall behind in so-called ‘physical AI,’ we will have no future,” Koo said. “That is why next year’s budget is larger in scale, with more aggressive restructuring than in previous years.”
Koo, who has pledged to run the economy like a business, said the reallocation would target areas with high growth potential to drive revenue and restore fiscal soundness through a “virtuous cycle.”
W72tr in AI, tech sectors
Most of the new resources will flow into AI and other strategic industries, with 72 trillion won earmarked for the “super-innovation economy” initiative, a 41 percent jump from 2025’s budget.
Spending on AI will more than triple to 10.1 trillion won in 2026, including 2.6 trillion won for adoption across industries and public services. The government has also pledged 6 trillion won over five years for robotics, autos, shipbuilding and semiconductors from 2026, while driving regional growth through AI hubs and testbeds.
Seoul will allocate 7.5 trillion won to expand AI infrastructure, including skilled worker programs, 15,000 additional GPUs to reach its 35,000-unit target and funds to drive AI research.
The biggest single boost comes in R&D, which will rise 19.3 percent to a record 35.3 trillion won, targeting core technologies in AI, biotech, defense, energy and manufacturing. Another 1.4 trillion won will fund efforts to secure 33,000 skilled professionals, domestic and international. To support startups, the government will launch a 100 trillion won National Growth Fund over five years, beginning with 1 trillion won in fiscal resources next year.
Seoul is also tapping cultural assets as a growth driver, allocating 5.7 trillion won, with 3.2 trillion won going toward promoting Korean content, food and tourism.
Amid ongoing global trade uncertainties, exporters will receive 4.3 trillion won in support, while funding for the energy transition will rise to 7.9 trillion won.
Social support, regional vitality
Korea is ramping up welfare spending to narrow the gap between the capital and other regions and to respond to demographic pressures.
The government will spend 29.2 trillion won, up more than 50 percent, to build regional growth hubs, strengthen national universities and expand medical and transportation services in the provinces.
A total of 70.4 trillion won will go toward addressing the population crisis, including higher child care allowances, youth support and more jobs for seniors, who now account for more than 20 percent of the population. The government also aims to supply 1.1 million public homes for young people and newlyweds by 2030, with 194,000 planned for 2026
The administration is restructuring foreign affairs and security spending to prioritize national interest and public safety, Koo said. The foreign affairs and unification budget will drop 9.1 percent, or 7 trillion won, mainly from cuts to official development assistance. The savings will be redirected to security and defense, with both public safety and the military set for increases of more than 8 percent.
Debt rate deepens on fiscal expansion
The total income for 2026 is projected at 674.2 trillion won, up 3.5 percent from 2025, with national tax revenue accounting for 390.2 trillion won.
The integrated fiscal balance is expected to show a deficit equal to 4 percent of gross domestic product, widening by 1.2 percentage points from the 2025 projection. National debt will climb to 1,415.2 trillion won, and the debt-to-GDP ratio will increase from 49.1 percent to 51.6 percent.
Koo said the government aims to rein in debt, pledging to keep the ratio below 60 percent through 2029 — a level he described as “manageable” and still lower than the average among advanced economies.
“This budget, which combines investment and spending reform, is not just a one-year plan but a roadmap for national policy over the next five years,” he said. “We will continue to focus resources on essential projects while restructuring those with low performance.”
jwc@heraldcorp.com