South Korea's Cabinet on Tuesday approved the 2026 budget of 727.9 trillion won ($495 billion), with a focus on nurturing strategic domestic industry through expansionary fiscal policy, a week after the bipartisan compromise on the 8.1 percent budget increase from this year.
It was the final step needed to implement the 2026 budget in January.
President Lee Jae Myung, who earlier touted his administration's expansionary policy as the catalyst for high-performance sectors such as artificial intelligence, acknowledged the cooperation of the ruling and opposition parties.
"I would like to thank (both parties) for passing the national budget bill on time," Lee said while presiding over the Cabinet meeting on Tuesday, highlighting that the parliament met its legal deadline for the budget approval for the first time in five years, while the administration's budget proposal underwent minor adjustments.
"I hope we can overcome political differences to join forces on issues of improving the quality of people's lives and serving the national interest," Lee added.
Lee's spokesperson Kang Yu-jung said Tuesday the Cabinet approved the budget without changes from the version that passed the National Assembly.
According to the budget bill that gained parliamentary approval on Dec. 2, the government debt in 2026 is projected to reach a record high of 1,413.8 trillion won, raising the government debt to gross domestic product ratio next year to 51.6 percent, up 3.5 percentage points from 2025. It will mark the first time the debt-to-GDP ratio has exceeded 50 percent.
The ratio has gradually increased, while remaining within the 40 percent range from 2020 to 2025, and within the 30 percent range from 2013 to 2019.
Moreover, the on-year rise in government spending will be sharper than the rise in government revenue.
The projected 8.1 percent increase in state spending for 2026 will outpace the projected 3.6 percent hike in revenue, which will stand at 675.2 trillion won.
The Lee administration has floated a proposal for the 728 trillion won budget spending. During his budget speech to the National Assembly in November, Lee said South Korea's swift adoption of AI technology through increased budget spending and a revived push for research and development would be key to the country's survival.
Lee’s fiscal expansion will mark a U-turn from the previous Yoon Suk Yeol administration's austerity. The 2024 budget proposal during the conservative president's term saw a 2.8 percent increase in spending — the smallest in about two decades.
Before Yoon, his predecessor liberal President Moon Jae-in pushed for a budget spending boost of roughly 9 percent each year from 2019 to 2022, in part to cope with the nationwide health crisis caused by the COVID-19 pandemic.
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