ED $562 billion gamble on chip boom

The government has unveiled a budget that deserves more scrutiny than applause. The proposed 2027 spending plan amounts to 820.9 trillion won ($562 billion) — 93 trillion won, or 12.8 percent, larger than this year’s budget. It is the biggest expansion on record.

The government calls it an investment in Korea’s future. The numbers suggest something less reassuring: a government spending spree financed on the assumption that today’s semiconductor boom will continue indefinitely.

President Lee Jae Myung has championed an expanded fiscal role, promising a “productive virtuous cycle” in which public spending raises potential growth, narrows inequality and prepares Korea for the future. At the heart of the plan is a new 162.3 trillion-won Future Response Fund, supposedly designed to channel resources into strategic industries and emerging technologies.

There is nothing inherently wrong with fiscal expansion. Korea needs investment in artificial intelligence (AI), semiconductors, energy security, infrastructure and research. But the test of a budget is not what the government calls it. It is where the money goes.

The numbers are revealing.

Of the 93 trillion won increase, 24.6 trillion won goes to health, welfare and employment, 27.6 trillion won to general and local administration, and 10.8 trillion won to education. Together, those three areas account for roughly 63 trillion won of the increase.

By comparison, research and development receives an additional 4 trillion won; industry, small and medium-sized enterprises and energy about 9 trillion won; and infrastructure barely 1 trillion won. These growth-related categories combined account for only around 14.6 trillion won of the increase.

That is hardly the profile of a budget primarily designed to expand productive capacity.

The spending surge is not a one-off response to an economic emergency. The government intends to continue increasing expenditures throughout Lee’s term. Its medium-term fiscal plan puts government spending at 1.005 quadrillion won by 2030. Total expenditures would rise by about 332 trillion won over five years — nearly as much as all the increases under the three previous administrations combined.

The justification rests heavily on an extraordinary revenue forecast. The government expects total revenue next year to jump by 205.6 trillion won, buoyed by a semiconductor and AI boom.

But booms end.

Korea knows better than most that the chip industry is cyclical. Prices fluctuate, inventories build and global demand weakens over time before picking up again. Technological shifts can rapidly reorder the competitive landscape. However, the government’s fiscal projections assume tax revenue will grow by more than 13 percent a year on average through 2030.

That is a dangerous assumption on which to build permanent spending.

Korea is not currently in a recession or facing a financial crisis that would justify extraordinary fiscal stimulus. Growth this year is expected to exceed 3 percent, potentially the strongest performance in five years, thanks largely to the semiconductor sector.

Why, then, should the government behave as if the economy were in an emergency?

There is another reason for concern: Fiscal expansion is being pursued even as monetary policy remains focused on inflation. With the Bank of Korea raising interest rates and renewed geopolitical tensions threatening energy and commodity prices, a massive increase in government spending risks adding demand-side pressure to an already uncertain inflation outlook.

The government insists this does not amount to an unhealthy fiscal-monetary mismatch. That argument will be credible only if the additional spending demonstrably raises Korea’s productive potential. If it instead finances consumption and permanent obligations, it risks producing the worst of both worlds and creating more debt without enough additional growth.

The 162.3 trillion-won Future Response Fund deserves particular scrutiny. Properly designed, it could finance precisely the investments Korea needs to compete in AI, advanced manufacturing and other strategic technologies. But without strict eligibility rules, transparent accounting and measurable performance targets, it could easily become a vast pool of discretionary government spending.

The National Assembly must therefore resist the temptation to rubber-stamp this superbudget. It should challenge optimistic revenue projections, examine every new permanent spending commitment and impose meaningful safeguards on the Future Response Fund.

Korea certainly needs to invest for the future. But fiscal responsibility is itself an investment in the future.

The government should remember a basic rule of budgeting: Temporary revenues must not finance permanent expenditures.

Otherwise, when the chips are down — literally and fiscally — the bill will be waiting for Korea’s future taxpayers.