With projections indicating that next year's national tax revenue could exceed 500 trillion won, the method for calculating local education funding has emerged as a key variable in the upcoming budget. If the current system, which ties funding to domestic tax revenue, remains in place, allocations could approach 100 trillion won. However, applying a formula under government review could reduce this figure to around 81 trillion won, resulting in a difference of approximately 20 trillion won depending on how the same tax revenue is distributed.
During a meeting of the Emergency Economic Headquarters and the Economic and Structural Innovation Ministers on August 6, the government announced plans to enhance fiscal responsiveness through the establishment of a Future Response Fund, restructuring education funding, and adjusting expenditures. The proposed reform of education funding is seen as a structural innovation aimed at utilizing additional tax revenue and securing investment capacity for future sectors.
In the first half of this year, national tax revenue reached 223 trillion won, an increase of 33 trillion won compared to the same period last year. With improved corporate performance from semiconductor giants like Samsung Electronics and SK Hynix contributing to higher corporate taxes, the prospect of reaching 500 trillion won in national tax revenue next year appears increasingly likely.
The current local education funding system automatically allocates 20.79% of domestic tax revenue and a portion of education taxes to regional education offices. Assuming next year's national tax revenue reaches 500 trillion won and domestic tax accounts for 88%, the domestic tax-linked portion alone would amount to 91.5 trillion won. Including education taxes, the total funding is expected to approach 100 trillion won.
The Ministry of Planning and Finance has proposed to the Ministry of Education a plan to abolish the domestic tax linkage and instead reflect 40% of the average growth rate of the last three years and the average change rate of the school-age population in the previous year's funding. If this formula is applied to this year's supplementary budget, which set the funding at 76.4 trillion won, next year's estimate would be around 81 trillion won.
On August 5, Hong Gun Park, Minister of Planning and Finance, stated on SBS's 'Joo Young-jin's News Briefing' that, "As the size of domestic tax revenue has increased, we are in the process of breaking the structural linkage of 20.79% and developing a new proposal. We are currently consulting with the Ministry of Education, and once the government reaches a consensus, we plan to present this in the form of a bill for parliamentary review."
The government maintains that it will not reduce funding for primary and secondary education even after the reform. The plan is to change the structure that automatically transfers funds exceeding the long-term growth trend to education offices during a tax revenue boom and to redistribute excess funds to the Future Response Fund and for higher, lifelong, and early childhood education.
Minister Park assured, "We will guarantee local education funding close to the long-term trend line, and any excess will be invested in balanced development for higher, lifelong, and early childhood education."
Concerns over the inefficient financial management of education offices have fueled discussions on the reform. The Board of Audit and Inspection noted in a 2023 audit that from 2018 to 2022, regional education offices spent approximately 3.5 trillion won on cash and welfare support projects, raising the possibility that additional funding could flow into projects unrelated to educational needs.
For instance, the Gyeonggi Provincial Office of Education distributed 166.4 billion won in recovery support funds to all students in 2021, regardless of income level, while the North Gyeongsang Provincial Office of Education was found to have provided laptops worth 4.6 billion won to about 3,700 non-teaching administrative staff and educational support personnel in 2021-2022.
In the education sector, there are counterarguments that fixed costs for school operations and facility maintenance do not decrease even as student numbers decline, and that new financial demands for AI education and special care programs are increasing. There are also concerns that abolishing the domestic tax linkage could undermine the stability and predictability of education funding.
The specific calculation method and implementation timeline for the education funding reform are expected to be outlined in the government's budget proposal for next year, which will be released at the end of this month. The reform plan was initially set to be unveiled at the National Fiscal Strategy Meeting on July 13, but the announcement was postponed due to a lack of consensus between the Ministry of Planning and Finance and the Ministry of Education. Since the reform requires amendments to the Local Education Funding Act, the final calculation method will be determined during the parliamentary review process.
* This article has been translated by AI.
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