South Korea Sets Record 2027 Budget as AI Chip Boom Lifts Tax Revenue

South Korea is preparing a record budget of more than 800 trillion won ($530.97 billion) for 2027 as booming demand for artificial intelligence chips strengthens the country’s tax revenues.

Budget Minister Park Hong-keun announced the spending plan during a national fiscal strategy meeting on Monday, July 13. The proposed budget is considerably larger than South Korea’s 727.9 trillion won spending plan for 2026, excluding supplementary budgets.

The government plans to finance the increase through a combination of higher tax receipts and cuts to existing expenditure. Some of the additional funding will be directed towards three national “mega-projects” focused on semiconductors, AI data centres and physical AI.

Physical AI refers to systems that allow machines such as robots, vehicles and industrial equipment to perceive their surroundings and act in the physical world.

The announcement shows how South Korea is beginning to turn the financial gains from the AI chip boom into public investment. Rather than treating stronger semiconductor revenue as a temporary windfall, the government wants to use it to expand the country’s technology infrastructure and support future economic growth.

AI Projects Given Fiscal Priority

South Korea’s government said the three technology projects would receive top priority when the 2027 budget is prepared.

The semiconductor programme will support the expansion of the country’s chip manufacturing capacity. South Korea is already home to Samsung Electronics and SK Hynix, two of the world’s largest memory chipmakers and major suppliers to the global AI industry.

The country’s AI data centre plans are intended to increase the computing infrastructure available for developing and operating AI systems. The physical AI programme will focus on applying the technology to industries such as robotics and manufacturing.

These projects were formally announced in June as part of a wider national investment drive involving government departments and several of South Korea’s largest technology companies.

Samsung Electronics and SK Hynix are expected to build new semiconductor fabrication plants in the country’s southwest. South Korean companies have also outlined plans for large-scale data centre investment and the commercial development of humanoid robots for industrial use.

President Lee Jae Myung said the government would use all available measures to help corporate investments proceed according to schedule. “Additional tax revenue coming at this time is a precious resource,” Lee said, describing the current period as a decisive point in the global competition for AI leadership.

The government’s spending plans come as demand for the specialised memory chips used in AI systems continues to increase. South Korean semiconductor sales rose 200 per cent year-on-year in June, helping the country record its strongest export growth since 1978.

Government Plans 50 Trillion Won Spending Review

Higher tax revenue won’t be the only source of funding for the record budget.

Park said the government would review around 50 trillion won in existing spending, twice the amount restructured during the previous year. The process will cover both discretionary and mandatory expenditure, with underperforming programmes facing reductions.

The government said this restructuring would create room for strategic investment without depending entirely on the additional revenue generated by the semiconductor industry.

That approach is intended to redirect public money towards programmes the government considers more important for South Korea’s future growth. It also limits the risk of building the entire spending increase around chip revenues that could change as global demand and semiconductor prices move.

The 2027 budget hasn’t been finalised yet. The government will still need to decide how much each programme receives before submitting its formal proposal.

Future Response Fund to Invest Tax Windfall

South Korea also plans to create a Future Response Fund that will use tax revenue exceeding long-term trends to support strategic national priorities.

The fund will invest in four areas: young people, new growth engines, regional development and talent. It’s designed to separate some of the additional revenue generated during periods of strong economic performance and direct it towards longer-term investment.

Government officials had previously said the fund would use part of the tax windfall from the semiconductor boom to support future industries and address economic inequality.

The decision reflects the scale of the current chip expansion. Global spending on AI infrastructure has increased demand for high-bandwidth memory and other advanced components produced by South Korean manufacturers.

SK Hynix chief executive Kwak Noh-jung recently warned that the global memory market could face a severe supply shortage in 2027, with demand potentially continuing to exceed supply beyond 2030.

South Korea’s proposed budget now links that commercial growth directly to government spending. The final plan will determine how much of the country’s semiconductor windfall is reinvested in the infrastructure, skills and industrial capacity needed to support its wider AI ambitions.