The South Korean government proposed its record budget plan for 2027 on Tuesday to drive economic growth through aggressive fiscal expansion, utilizing a semiconductor-led tax windfall.

South Korean President Lee Jae-myung presided over a cabinet meeting to endorse the budget proposal of 820.9 trillion won ($598.8 billion) for next year, up 12.8 percent compared to the previous year.

If confirmed by the National Assembly, the 2027 fiscal spending would mark the fastest single-year growth, topping the previous record of 10.6 percent set during the 2009 global financial crisis, according to the Ministry of Planning and Budget.

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The unprecedented fiscal expansion was funded by the semiconductor boom, which was projected to push national tax revenues up by 194.2 trillion won to 584.4 trillion won next year.

Aggregate revenues, including tax and non-tax revenues, were forecast to surge 30.4 percent over the year to 880.8 trillion won in 2027.

"We are now standing at the crossroads between structural low growth and a rebound in our potential growth rate," Lee said at the cabinet meeting, emphasizing the need for the expansionary budget.

Acknowledging the "unavoidable" interest rate hikes, Lee stressed the need for the fiscal expansion to minimize the financial pain inflicted by the monetary tightening.

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The country's central bank raised its benchmark interest rate by 25 basis points to 3 percent in August, delivering back-to-back rate hikes amid rising worries about inflationary pressure and household debts.

To foster future growth engines, the budget focused on industrial revitalization and future technologies. The research and development budget was set at 39.5 trillion won, up 11.2 percent compared to this year.

The double-digit increase aimed to secure technological sovereignty and drive future growth by aggressively scaling up investments in 10 next-generation strategic technologies, including artificial intelligence (AI), advanced robotics and semiconductors, and accelerating AI integration across all major industries.

Budget for industry, small and medium enterprises (SMEs) and energy jumped 29.7 percent to 41.2 trillion won for 2027 to speed up manufacturing AI transformation, shift toward renewable energy, boost regional economies and support supply chain diversification.

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Next year's environment budget gained 5.2 percent to 14.6 trillion won to accelerate decarbonization and reinforce safety against climate disasters, while budget for culture, sports and tourism soared 20.4 percent to 11.6 trillion won to enhance cultural soft power, bolster regional tourism and improve sports competitiveness.

For national defense, 73.3 trillion won was allotted for 2027, up 8.2 percent from a year earlier.

Budget for health, welfare and employment grew 9.3 percent to 289 trillion won, and education budget expanded 10.8 percent to 110.7 trillion won.

The country's national debt-to-GDP ratio was expected to drop 3.3 percentage points to 48.3 percent in 2027.