Mandatory Spending Nears 55% of South Korea Budget as Basic Pension, Education Grants Top 100T Won

More than half of the government’s total spending next year is set to be locked in as legally mandated outlays, rapidly narrowing fiscal flexibility. The basic pension and education grants to local governments are emerging as key drivers of the burden as they approach a combined 100 trillion won a year.

According to the government’s 2025-2029 National Fiscal Management Plan submitted to the National Assembly last year, total spending next year is projected at 764.4 trillion won, with mandatory spending at 415.1 trillion won, or 54.3%. With mandatory spending rising faster on average (6.3% a year) than total spending (5.5%), its share is expected to climb to 55.0% in 2028 and 55.8% in 2029.

Most mandatory spending is statutory welfare outlays, including basic livelihood support, health insurance, the four major public pension programs and the basic pension. As South Korea enters a super-aged society, both the number of recipients and benefit payments are increasing. Related spending is estimated to exceed 200 trillion won next year and expand to 237 trillion won by 2029.

Beyond welfare, the cost of transfers to local governments is also rising quickly. Local allocation tax and education grants, which are linked to domestic tax revenue, are expected to top 150 trillion won next year and reach the 170 trillion won range by 2029.

The basic pension and education grants are cited as variables that could reshape the fiscal structure. As the government has set a goal of cutting mandatory spending by 10% during the process of drafting next year’s budget, observers expect reform talks around the two programs to accelerate.

The basic pension is seen as a leading item with room to adjust eligibility and payment methods. President Lee Jae-myung has proposed differentiated payments based on the principle of “the higher, the lower,” increasing the likelihood of changes. Education grants, meanwhile, automatically rise because they are tied to domestic tax revenue even as the school-age population declines. That structure has fueled recurring debate over surplus funds, and critics warn the fiscal burden could grow further if tax revenue increases, such as from strong semiconductor exports.

Under the fiscal plan, basic pension spending is projected to rise from 25 trillion won next year to 28.2 trillion won in 2029, while education grants increase from 77.1 trillion won to 85.9 trillion won. Combined, the two items are expected to total about 100 trillion won and account for roughly one-quarter of mandatory spending.

Academics have already outlined potential savings under reform scenarios. A research report commissioned by the Ministry of Economy and Finance, now the Ministry of Planning and Budget, found that gradually raising the eligibility age for the basic pension could save up to 603.4 trillion won through 2065.

Analysts have also said revising the formula that links education grants to domestic tax revenue could significantly reduce the burden. Kim Hak-su, a senior research fellow at the Korea Development Institute, estimated in a report that savings could reach up to 1,046.8 trillion won from 2021 to 2060.