Lee Jae-myung, President / Courtesy of the President's Office Press Corps

As the Lee Jae-myung government, which declared its intention to establish three major powers in artificial intelligence (AI), faced a situation that required tightening its belt, it began to cut related funds. The method of distributing 250,000 won worth of livelihood recovery consumption coupons to all citizens was changed, necessitating a reduction in the AI fund budget. The government explained that this was a preemptive measure considering that private investment might not proceed smoothly.

On the 4th, the National Assembly approved and confirmed the supplementary budget for the second time in 2025, which included a 100 billion won reduction in the AI and deep tech funds. This was due to an additional 1.9 trillion won being needed in the process of distributing livelihood recovery consumption coupons worth 150,000 to 520,000 won to all citizens.

Initially, the government intended to issue livelihood recovery consumption coupons with 70% of the funding from the national budget for Seoul and only 80% for other regions. The remaining funding was meant to be covered by local governments. As voices raised concerns about the financial burden, even in financially autonomous Seoul, the National Assembly raised this ratio to 75% for Seoul and 90% for other regions. Additionally, the plan to grant an extra 20,000 won to residents of declining population areas was expanded to 30,000 won for non-capital areas and 50,000 won for declining population areas.

As a result of the discussions in the National Assembly, the central government ended up spending an additional 1.9 trillion won solely on the livelihood recovery consumption coupons. Moreover, measures to expand investments in new industries and to increase childcare support funding by 5% were added, and the scale of the supplementary budget increased by 2.4 trillion won compared to the government's original proposal of 30.5 trillion won.

To secure funding, the government cut budgets allocated to various projects, with the AI and deep tech funds being the most severely affected. The AI and deep tech startup fund is divided into the AI and deep tech 'startup' fund that invests in early-stage firms and an AI and deep tech 'scale-up' fund that supports promising companies to become unicorns, and both funds were reduced. Consequently, the sizes of the two funds, which were previously 240 billion won and 160 billion won, were reduced by 50 billion won each.

Both funds are seed funds. If private corporations invest, the government also contributes funds proportionately. The Ministry of Small and Medium Enterprises and Startups plans to select criteria for startups receiving fund support as soon as the supplementary budget is finalized, but with the budget decrease, they will inevitably have to reduce the targets and scale compared to the previous amounts.

There is also an increased budget for AI. The government allocated an additional 42.6 billion won in this supplementary budget to design and validate leading models for physical AI in order to secure global dominance.

A government official noted, 'The budget was cut considering the investment capacity of private corporations in the second half of the year.' This signifies that if the investment demand from private companies does not meet expectations, the execution of the government’s seed fund will also decrease, thus the related budget was self-reduced. The AI and deep tech fund is a fund being established for the first time this time.

In addition to the AI and deep tech funds, the government has decided to reduce a total of 1.1 trillion won from existing projects, including a 7.4 billion won cut in official development assistance (ODA) projects. An official from the Ministry of Economy and Finance said, 'The remaining projects with budget cuts are under 100 billion won,' adding that 'the scale of reductions in seed fund related to small and medium enterprises was significant.'

The remaining 1.3 trillion won needed for the supplementary budget (2.4 trillion won - 1.1 trillion won) will be secured through additional government bond issuance. As the issuance of government bonds increases, the consolidated fiscal balance without social security fund against gross domestic product (GDP) is projected to be -4.2%, and government debt will rise to 49.1%.

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