The Lee Jae-myung administration will maintain its "active fiscal" stance next year. To that end, it plans to restructure 15% of discretionary expenditure and 10% of mandatory expenditure and reinvest the savings in four key tasks: shifting the national growth paradigm, growth led by localities, easing polarization, and building public safety.
The Ministry of Planning and Budget on the 30th announced its "Guidelines for drafting the 2027 budget bill." The Ministry of Planning and Budget said, "To expand growth engines and support structural reform, high-intensity expenditure restructuring and strategic resource allocation based on the principles of right time and place and curbing the unnecessary are needed."
◇ Forecast: 15% cut to discretionary expenditure, 10% cut to mandatory expenditure
The government signaled a high-intensity expenditure restructuring. It plans to cut discretionary expenditure by 15% from this year's budget level and reduce mandatory expenditure by 10% from next year's projected level. "Mandatory expenditure" refers to uncontrollable items whose spending levels are already set by law, such as the basic pension, while the remainder of total fiscal expenditure excluding such mandatory expenditure is called "discretionary expenditure."
In size, it is expected to exceed this year's expenditure restructuring, which was the largest ever (27 trillion won). A simple calculation, considering the discretionary expenditure in this year's budget (340 trillion won) and the mandatory expenditure for next year stated in the National Fiscal Management Plan (415 trillion won), puts the restructuring at about 90 trillion won. However, the Ministry of Planning and Budget said, "Rather than cutting the entirety of mandatory expenditure across the board, we will exclude essential expenditure such as welfare and set the base focused on adjustable areas to push reductions."
In particular, for mandatory expenditure, past administrations had not set explicit restructuring targets. Last year, they only indicated a direction to restructure mandatory expenditure as well, and actually saved about 2 trillion won. Local government finance education grants, the basic pension, livelihood benefits, and cash support for children are expected to be on the restructuring list.
In addition, projects that are temporary or sunset programs but have had their deadlines repeatedly extended will, in principle, be terminated. The government plans to provide more active fiscal support to regions the farther they are from the capital area, taking into account distance from the Seoul metropolitan area, level of regional development, and degree of depopulation. Admission fees and levies for national facilities such as museums, palaces, and royal tombs will also be adjusted to realistic levels.
◇ Active investment in four areas: growth, regions, polarization, and safety
The government plans to focus next year's investment, funded by these savings, on four broad areas. First is a shift in the national growth paradigm. It will accelerate manufacturing AX (AI transformation) and intensively foster advanced strategic industries by creating the Public Growth Fund and establishing special accounts for semiconductors. It will expand carbon-neutral investment and is expected to support K-content production with fiscal resources.
It will also back region-led growth such as the "five hubs and three special zones." It will create advanced regional bases including a southern semiconductor belt, AI proof-of-concept cities, and RE100 industrial complexes, and strengthen regional infrastructure by linking flagship national universities, railways and roads, and enhanced medical services. It will expand infrastructure such as performance halls and art museums in the regions and provide up to 5 trillion won per year in fiscal support to integrated local governments such as Jeonnam-Gwangju Special City.
To improve the structure of polarization, the government plans to invest in budgets for projects including: revitalizing the startup ecosystem; strengthening support for youth recovery, experience, and growth; responding to low birthrates and closing welfare blind spots; and social and solidarity economy initiatives. To build public safety and peace, it will invest in projects related to overhauling the industrial accident insurance system, building the K-defense industry ecosystem, stabilizing supply chains, and reorganizing official development assistance (ODA) toward projects that contribute to the national interest.
To support these projects in a timely manner, the government plans to apply an improved preliminary feasibility study system. It will abolish preliminary feasibility studies for R&D (research and development), raise the exemption threshold amount for SOC (social overhead capital) projects, and work to spur private investment.
Based on these guidelines, each ministry must submit its budget request to the Ministry of Planning and Budget by the end of May. The Ministry of Planning and Budget will coordinate and refine the requests with each ministry, compile the government proposal, and submit it to the National Assembly by Sept. 2.