The ball is now in the government’s court

South Korea’s proposed 2027 budget contains an unfamiliar set of numbers: the country’s fiscal position appears to improve sharply, largely because a semiconductor boom is expected to lift tax revenues.

The government projects the national debt ratio to fall from 50.6% of nominal gross domestic product this year, based on the supplementary budget, to 48.3% next year. Absolute debt would still rise by 107 trillion won, reaching 1,519.8 trillion won from 1,412.8 trillion won. The ratio improves because nominal GDP is forecast to grow much faster. The government expects nominal growth of 12.3% this year, the highest since 1996, followed by 4.6% next year. GDP could exceed 3,000 trillion won for the first time.

The managed fiscal balance is projected to show a deficit of just 0.1%, or 3.1 trillion won. That is well below the government’s 3% deficit-management target. The article interprets the negative figure as largely symbolic, preserving the Lee Jae Myung administration’s emphasis on active fiscal policy while keeping the balance technically below zero. Of this year’s 162 trillion won in additional tax revenue, 104 trillion won was placed in a future-response fund rather than included in next year’s budget.

The national tax burden is also expected to jump from 25% this year to 29.8% next year. South Korea’s 2024 figure of 25.3% remained well below the OECD average of 34.1%. The projected increase reflects the enormous operating profits expected from semiconductor companies and higher income-tax payments by employees receiving bonuses worth hundreds of millions of won.

The article warns against becoming intoxicated by a “semiconductor illusion.” The government forecasts next year’s national tax revenue at 584.4 trillion won, up 40.7% from this year, and expects it to reach 644.8 trillion won in 2030. That implies an average annual increase of 13.4% from this year through 2030. Yet the semiconductor industry moves in cycles. Only two years ago, Samsung Electronics and SK Hynix reported heavy operating losses during a downturn, and corporate-tax revenue fell from 103.6 trillion won in 2022 to 62.5 trillion won in 2024.

External risks also remain, including instability in major-country bond yields, doubts about the financing of large U.S. technology companies making massive investments, and pressure from the Trump administration for semiconductor production in the United States. JPMorgan said South Korea’s changing macroeconomic conditions had entered “a historically unusual area.” The government now has to show whether this is a temporary event or the painful beginning of a structural leap.

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a historically unusual area