South Korea to accept Trump’s demand of 5% GDP defense budget: The government reclassifies SOC, R&D and veteran affairs budget as defense budget

Ahead of the Korea–U.S. summit, the U.S. is expected to press the South Korean government to increase defense spending. In response, Seoul is reportedly considering adjusting its accounting standards to calculate defense expenditures at around 5% of GDP — up from the current 2.3% — without an actual increase in real spending.

According to SBS on the 7th, a senior government official said, “To set defense spending at 5% of GDP, we plan to count budgets for veterans’ affairs, military manpower administration, and civilian–military R&D as part of defense expenditures.”

Currently, South Korea’s annual defense budget is about 61 trillion won, or 2.3% of GDP. This budget is largely divided into operations and maintenance costs (for unit upkeep and personnel expenses) and force improvement costs (for weapons development and procurement). However, these two categories alone are insufficient to raise the defense share to 5% of GDP. South Korea’s definition of “defense spending” is considered narrower than that used in the U.S. or European countries.

To address this, the government is pushing to include in the defense budget:

• Ministry of Patriots and Veterans Affairs budget (over 4 trillion won annually)

• Military Manpower Administration budget (about 500 billion won)

• Civilian–military cooperation R&D under the Ministry of Trade, Industry and Energy (over 100 billion won annually), covering some 130 projects including mobile reconnaissance robots and loitering munitions.

These budgets, which until now have not been counted as defense spending, could be reclassified as direct defense expenditures.

The government believes that with such accounting adjustments, along with limited new spending, it could calculate “direct defense spending” at over 3% of GDP. Adding another 1–2% of GDP as “indirect defense spending” — such as portions of AI, robotics, and drone development budgets supported by the Industry Ministry, as well as national-security-related SOC (social overhead capital) projects like satellite development and port/rail infrastructure — would bring the total to around 5%.

A senior official explained, “This allows us to present an increase on par with European countries while minimizing the need for entirely new budget allocations.”

NATO member states, under U.S. pressure, have agreed to raise direct defense spending to 3.5% of GDP and indirect defense spending to 1.5% over the next decade, for a combined 5%. Accordingly, alignment of defense-spending criteria and burden-sharing arrangements may emerge as a key agenda item at the upcoming Korea–U.S. summit.

Elbridge Colby, U.S. Deputy Secretary of Defense for Policy during the Trump administration, remarked on X (formerly Twitter) on July 31 (local time), “South Korea seeks to play a more leading role in strong defense against North Korea and continues to be a role model in defense spending.”