The Lee Jae-myung government has unveiled a budget proposal for 2026 approaching 730 trillion won. The total expenditure has increased by 8.1% compared to this year's main budget. This is the first time since the establishment of the Republic of Korea that the main budget has exceeded 700 trillion won.
Though expenditure increased by 8.1%, total revenue is projected to remain at about 674 trillion won, a 3.5% increase compared to the previous year. Even reflecting the revenue revision of minus 10.3 trillion won conducted during the second supplementary budget in 2025, the total revenue growth rate is limited to 4.9%.
The consolidated fiscal balance, which is the total revenue minus total expenditure, is expected to show a deficit of 53.8 trillion won. The consolidated fiscal balance without social security fund is projected to record a deficit of 109 trillion won. This fiscal deficit will be covered by government bonds. The Ministry of Economy and Finance noted that the government debt, which is expected to exceed 1,300 trillion won this year due to the second supplementary budget, is forecasted to surpass 1,400 trillion won next year.
◇ The first budget of the Lee government shows… R&D increased by 19.3%, industry by 14.7%
On the 29th, the government deliberated and decided on the 2026 budget proposal at a cabinet meeting chaired by President Lee Jae-myung. Emphasizing the fiscal role in economic recovery, the Lee Jae-myung government organized next year's budget on an expansionary fiscal policy.
Deputy Minister and Minister of Economy and Finance, Ku Yun-cheol, said, "The budget has been set at 728 trillion won, significantly expanding total expenditure by 8.1% compared to the previous year, so that finances can lead recovery and support the transition to a leading economy," adding, "Most of the increased funds have been concentrated in areas that enhance the country's future growth potential, such as R&D, AI, and ultra-innovative economy-leading industries."
One of the most notable aspects of next year's budget proposal is the research and development (R&D) budget. The R&D budget, which was 29.6 trillion won in this year's main budget, has been organized at 35.3 trillion won for next year. The growth rate reaches a staggering 19.3%, which is the highest increase ever.
The budget for the industry, small and medium enterprises, and energy sectors also increased by 14.7% from 28.2 trillion won to 32.3 trillion won. The growth rates for the cultural, sports, and tourism budget and public safety budget exceeded the total expenditure increase rate at 8.8%.
In contrast, the budget for the diplomacy and unification sector decreased from 7.7 trillion won to 7 trillion won, a reduction of 0.7 trillion won (9.1%). While the Inter-Korean Cooperation Fund has increased, the official development assistance (ODA) budget has been drastically cut.
◇ Concerns about worsening fiscal soundness… government debt is expected to exceed 1,900 trillion won by the end of the term
The Lee Jae-myung government's 'fiscal philosophy' aims to expand the fiscal role to stimulate the economy and enhance potential growth rates, but there are concerns that the rapidly increasing government debt will burden future generations.
The expected scale of government debt for next year is 1,415.2 trillion won. The ratio to gross domestic product (GDP) is projected to be 51.6%. This represents a staggering increase of 113 trillion won compared to the expected scale of government debt this year. The bigger issue is that this trend of increasing government debt is anticipated to continue throughout the Lee Jae-myung government's term.
The Ministry of Economy and Finance projected in the National Fiscal Management Plan that the scale of government debt would reach 1,533 trillion won in 2027, 1,664 trillion won in 2028, and 1,789 trillion won in 2029. The government debt ratio to GDP is expected to be 58% in 2029. If this trend continues until 2030, the scale of government debt is likely to exceed 1,900 trillion won, with the GDP ratio surpassing 60%.
Regarding concerns about worsening fiscal soundness, Ku, the former Deputy Minister, said, "The previous government tried to secure fiscal soundness by lowering the expenditure growth rate, but it only lowered the potential and economic growth rates," adding, "Passive fiscal management can weaken the revenue base and ultimately lower potential growth rates, creating a vicious cycle."
The alternative proposed by Ku, the economic chief of the Lee Jae-myung government, is to 'nurture future industries through fiscal input → secure revenue growth and fiscal soundness based on economic growth.' Ku noted, "We will create a virtuous cycle by concentrating investment in areas that can enhance growth potential, thereby boosting the economy and improving revenue conditions," and added, "If we see results in the AI sector, fiscal soundness can be secured along with an increase in potential growth rates."
Experts have positively evaluated the concentration of national finances on future promising industries.
Lee Sang-min, the senior researcher at the National Research Institute for Government, remarked, "This year's second supplementary budget adopted a short-term solution of cash payments," adding, "Next year's budget seems to focus on medium to long-term R&D."
Joo Won, head of economic research at the Hyundai Research Institute, stated, "The logic seems to be to expand investments in new industries to enhance growth potential and increase revenue to prevent worsening fiscal soundness," noting, "Given the current situation where the growth rate forecast is in the 0% range, there seem to be no alternatives."
However, there were voices of concern regarding the deterioration of fiscal soundness due to increased expenditure.
Director Joo stated, "There is a time lag before government investment leads to actual economic growth. This is a rather risky period," adding, "There are concerns that the worsening fiscal soundness due to the rapid increase in government debt may lead to a decline in external credibility."
Professor Kim Woo-cheol from the taxation department at the University of Seoul commented, "Since the government aims for expansionary expenditure, a significant increase in expenditure scale was expected," but warned, "The issue is fiscal deficit management. This is the first budget of the new government, yet it has organized a fiscal budget with a deficit of 110 trillion won. We must not take fiscal deficits for granted."