Seoul: The government proposed a budget of 728 trillion won (US$525 billion) for next year Friday, aiming to significantly boost spending on research and development (R and D) and artificial intelligence (AI) to drive future economic growth.
According to Yonhap News Agency, the proposed budget for 2026, endorsed by the Cabinet on the day, marks an 8.1 percent, or 54.7 trillion-won, increase from the government's budget proposal for this year, as noted by the Ministry of Economy and Finance. This increase represents a sharp acceleration from a 3.2 percent on-year increase in 2025 and a 2.8 percent rise the previous year.
It is the first full-year budget plan unveiled by the new administration of President Lee Jae Myung, who has advocated for a fiscal expansion policy to address economic challenges, including a slowdown in exports due to U.S. tariff measures, a declining working-age population, and subdued corporate investment.
"To overcome such headwinds, we need not just expansionary fiscal management but a strategic fiscal operation focused on effective outcomes," Finance Minister Koo Yoon-cheol stated during a press briefing. Koo emphasized that the government will focus on performance-based spending by drastically cutting or eliminating unnecessary expenditures while investing in areas that produce tangible results.
To secure needed resources, the government cut a record high 27 trillion won in non-core expenditures, nearly half of the total increase in next year's budget, by scrapping around 1,300 projects deemed low-performing or unnecessary. If finalized, it would mark the fourth consecutive year the government has implemented over 20 trillion won in spending adjustments.
Among the key cutbacks is a significant reduction in the budget for official development assistance (ODA), which had surged during the previous Yoon Suk Yeol administration. Instead, the 2026 proposal focuses on building a "super innovation economy," led by cutting-edge technologies like AI. A total of 72 trillion won is allocated for innovation-related sectors, up from 51 trillion won proposed last year.
The budget allocated for AI is at 10.1 trillion won, up from 3.3 trillion won this year, with funds earmarked for projects such as the purchase of 150,000 graphics processing units (GPUs) and talent cultivation. A five-year economic development blueprint unveiled earlier by the Lee government emphasizes AI as a core driver of economic growth, with the private sector leading innovation, backed by comprehensive AI-focused government policies.
Since taking office in June, Lee has pledged to elevate South Korea into one of the world's top three AI powerhouses, committing to invest 100 trillion won by creating various investment funds over the next five years. The finance minister stated that the government will inject 1 trillion won in public finances next year and allocate a record high 2 trillion won to funds designed to help scale up promising small and venture firms.
In the long term, the government will invest about 6 trillion won over the next five years in regional innovation hubs that develop and test AI-enabled technologies in sectors such as robotics, automotive, shipbuilding, and manufacturing, the ministry added.
The proposal also called for a record high 19.3 percent increase in the budget for R and D to allocate 35.3 trillion won in 2026. This marks a significant shift from the previous administration's sharp cuts in R and D spending, which had sparked concerns over potential negative impacts on fundamental research and long-term productivity growth.
"This year's budget proposal, which balances investment and spending innovation, is not just a one-year plan but serves as a milestone that outlines the government's direction for the next five years," Koo stated.