SEOUL - South Korea on Sept 1 unveiled its most aggressive fiscal spending plan on record, setting total government expenditure for 2027 at 821 trillion won (S$761.6 billion) to strengthen the country’s technological edge amid the global AI race.

In its annual budget proposal, the budget ministry said the spending plan represented a 12.8 per cent rise from 2026, marking the largest year-on-year increase on record.

The proposal signals a shift in Asia’s fourth-largest economy under President Lee Jae-myung, who has championed an expansionary fiscal policy since taking office in June 2025, pivoting away from three years of austerity under his predecessor.

The historic spending increase is being fuelled by a windfall from the country’s semiconductor industry.

Samsung Electronics and SK Hynix are generating unprecedented profits driven by global demand for high-bandwidth memory (HBM) chips used in the AI boom.

Total tax revenue is seen increasing 40.7 per cent in 2027 to 584.4 trillion won, with corporate tax receipts alone projected to more than double to 216.7 trillion won.

The revenue surge is expected to help reduce South Korea’s debt-to-GDP ratio by 3.3 percentage points to 48.3 per cent, down from an estimated 51.6 per cent in 2026.

Bond yields up

Part of the tax windfall will be allocated to curb government borrowing. Total government bond sales for 2027 will drop to 222.8 trillion won, down from 225.7 trillion won in the 2026 budget.

Net bond issuance, which reflects the creation of fresh sovereign debt, will decline even more sharply by 13.1 trillion won to 96.3 trillion won, down from 109.4 trillion won in 2026.

Despite this, yields on So...