South Korea's public sector, which combines the government and state-owned enterprises, ran a deficit of more than 83 trillion won ($60 billion) last year, the largest since records began. Total revenue rose 53 trillion won on higher corporate and income taxes and social insurance contributions, but spending increased 67 trillion won on transfers to households such as consumption recovery coupons, government consumption and public housing investment.
The public sector balance came to a deficit of 83.1 trillion won last year, according to the 2025 public sector accounts (preliminary) released by the Bank of Korea on the 18th. The shortfall widened by 14 trillion won from 69.1 trillion won a year earlier, the largest since 2007. The public sector accounts compile revenue and spending by the central and local governments, social security funds, and non-financial and financial state-owned enterprises.
Total public sector revenue was 1,192.1 trillion won, up 53 trillion won, or 4.7%, from a year earlier, driven by higher corporate and income taxes and social contributions including national pension and health insurance premiums. Total spending rose 67 trillion won, or 5.5%, to 1,275.2 trillion won, exceeding the increase in revenue by 14 trillion won.
Transfers to households and government consumption led the increase in spending. Two supplementary budgets, including one funding the consumption recovery coupons, lifted other current transfers by the general government by 18.4 trillion won, while final consumption expenditure, which includes health insurance benefit payments, rose 21.7 trillion won. The central bank cited aggressive fiscal execution, preparations for the Asia-Pacific Economic Cooperation (APEC) summit and higher health insurance benefit payments as medical services normalized.
By sector, the central government deficit widened to 90.1 trillion won from 83.8 trillion won, topping 90 trillion won for the first time. The local government deficit narrowed to 2 trillion won from 15.5 trillion won, helped by larger central government grants, while the social security fund surplus shrank to 32 trillion won from 41.8 trillion won as an aging population pushed up benefit payments. The general government balance was a deficit of 60.1 trillion won, wider than a year earlier. As a share of nominal gross domestic product, that was -2.2%, below the Organisation for Economic Co-operation and Development average of -4.4%. The public sector balance equaled -3.1% of GDP.
State-owned enterprises also deepened their losses. The balance for non-financial state-owned enterprises swung further into deficit, at 22.1 trillion won from 16.7 trillion won, as investment spending rose on public housing construction and expanded urban development. Financial state-owned enterprises flipped to a deficit of 900 billion won from a surplus of 5.1 trillion won as falling interest rates cut interest income.
Some warn that repeated increases in fiscal spending could translate into a medium- to long-term fiscal burden. The Bank for International Settlements recently said high public debt in major economies could raise sovereign risk premiums and inflation expectations, amplifying macro-financial risks.
The Bank of Korea, however, said the public sector balance could improve. Higher corporate and income tax revenue from a semiconductor boom should narrow the deficit this year and could bring a return to surplus next year, it said.
"From this year, corporate and income tax revenue is expected to increase substantially on the semiconductor boom," said Lee Hyun-young, head of the Bank of Korea's expenditure and national income team. "We expect the deficit to narrow in 2026 and see the possibility of a swing to surplus in 2027." Lee added, "Increases in national pension and health insurance premium rates should also slow the shrinking of the social security fund surplus, which we see as positive for the balance."
