The government has signaled 'active fiscal policy' through guidelines for next year's budget. As the economy stagnates, domestic demand stimulation and youth job creation have been identified as the top budgetary priorities for next year under 'livelihood' issues. Budget allocation is also expected to concentrate on strengthening industrial competitiveness in the fields of artificial intelligence (AI), semiconductors, and biotechnology, as well as responding to trade uncertainties caused by the 'Trump risk.'
On the 25th, the government passed and confirmed the 'Guidelines for Preparing the 2026 Budget and Fund Management Plan,' containing this information, during a Cabinet meeting chaired by Prime Minister Han Duck-soo, who is acting on behalf of the president. Consequently, this guideline, which serves as the 'guideline' for budget preparation, will soon be communicated to all ministries, and each ministry is required to submit its budget requests according to this guideline to the Ministry of Economy and Finance by May 31. The Ministry of Economy and Finance will compile this and, after discussions with the ministries, prepare next year's budget to be submitted to the National Assembly by September 2.
◇ 'Sound fiscal policy' disappears from the narrative... 'Active role of finance is necessary'
The government is expected to employ 'active fiscal policy' next year. The Ministry of Economy and Finance stated in its preparation guidelines that 'an active role of finance is required.' This marks a significant shift from the previous policy, which emphasized 'sound fiscal policy' under the Yoon Suk-yeol administration's 2023-2025 budget preparation guidelines, which consistently projected a 'tight budget.'
However, it does not mean that the government has completely abandoned sound fiscal policy. The government has stated that it will restructure discretionary spending, excluding essential costs, by more than 10%. It also noted it would examine whether there is room for adjustment in mandatory expenditures that are legally obligated. Reducing discretionary spending has been mentioned annually, but it is the first time the government has indicated it will examine the potential for restructuring mandatory expenditures such as the basic pension and grant-in-aid for educational finance. This means actively spending where necessary while also making efforts to conserve where possible.
A Ministry of Economy and Finance official explained, 'While sufficiently fulfilling the role of financial support for key areas such as livelihood and industry, we aim to reconcile both propositions by securing fiscal capacity through restructuring.' They added, 'In the past, we focused on short-term 'sound fiscal policy,' but now we mean to consider medium and long-term 'fiscal sustainability.'
◇ Focused budget investments in four key areas: livelihood, industry, future, and safety
The government identified 'livelihood stability' as the top priority for budget allocation next year. This contrasts with this year's budget preparation guidelines, which placed industrial growth at the forefront. To achieve this, the government plans to stimulate consumption in vulnerable sectors such as small businesses and traditional markets and assist in stabilizing small business operations. It will create jobs for the youth and elderly, provide public housing, and reinforce social overhead capital (SOC) early to stabilize housing for the working class.
Efforts will also be made to enhance industrial competitiveness. The government plans to focus on nurturing and attracting talent in the AI sector while expanding related infrastructure and actively supporting advanced industries such as biotechnology and semiconductors, as well as traditional industries like shipbuilding, defense, and steel. Investment in 'game-changer' basic and foundational technology research and development (R&D) will also be strengthened. Most importantly, the budget will be allocated to address export difficulties, explore new markets such as the global south, and stabilize supply chains in response to growing trade uncertainties.
The government will also respond to future issues such as population decline, regional extinction, and climate crises. To address low birth rates, it will enhance work-family balance, care, and housing support while paying attention to the employment, incomes, and care of the elderly as the nation enters an ultra-aged society. The government will work on improving industrial, educational, and housing issues centered around local hubs, as well as support the modernization of agriculture and fisheries. Additionally, it will expand carbon-free energy sources such as nuclear power and hydrogen, and establish a comprehensive early childhood care network.
Considerable investments will be made in national safety, diplomacy, and security. The government will strengthen prevention and investigation against crimes that infringe on livelihood, such as drug-related offenses, digital sex crimes, and voice phishing, and will work on establishing the foundation for regional and essential medical services and enhancing disaster preparedness infrastructure. Focus will also be placed on advanced power augmentation, supporting defense industry exports, improving military service conditions, and strategic official development assistance (ODA) linked to overseas expansion for corporations and youth.
To support these key budget priorities, the government plans to actively utilize various funds. The Ministry of Economy and Finance stated in the '2026 Fund Management Plan Guidelines' that it would 'efficiently manage excess funds through pension fund investment pools to enhance profitability and actively utilize funds with surplus resources to strengthen integrated management of national finances.'