Don't tie education grants to GDP growth rate

South Korea's Ministry of Education is reportedly considering a significant change to how local education grants are calculated. The proposal involves linking the grants to the gross domestic product (GDP) growth rate, moving away from the current system that ties them to a fixed 20.79% of national taxes. This shift, if implemented, would increase the education grant from 76 trillion won this year to an estimated 84 trillion won next year.

However, education sector advocates strongly oppose this change, arguing that it undermines the stability of education funding. The current national tax-linked system, established in 1972, has provided a consistent financial baseline for education budgets through various economic conditions, including student population booms and recessions. Linking grants to GDP growth, which can fluctuate significantly, ranging from negative growth during crises like the 1998 Asian financial crisis and the 2009 global financial crisis, to highs like the recent 10.5% in the first quarter, would introduce extreme volatility.

Critics warn that a sharp economic downturn could lead to trillions of won being cut from education budgets, disrupting long-term educational planning. Schools require stable, multi-year funding for projects such as construction, teacher training, and infrastructure development. Shifting to a GDP-linked system would force educational authorities to constantly revise their mid-term financial plans based on volatile economic forecasts and currency exchange rates, compromising the predictability essential for effective educational investment.

An alternative proposal suggests maintaining the current national tax-based formula but introducing an annual fluctuation cap of around 10%. Any excess tax revenue above this cap would be deposited into a "Republic of Korea Future Generation Fund." Conversely, during leaner years, this fund would support education budgets. This approach aims to ensure predictable growth in education grants while using windfalls from economic booms to build reserves for future generations and buffer against downturns. The core principle being defended is not the specific percentage but the "predictable stable growth" that the current system provides, which would be jeopardized by linking grants to a volatile economic indicator.