Student Numbers Drop While Education Budget Rises; Calls to Reform Fixed Tax Allocation

Calls are intensifying in South Korea to reform the provincial education and tax grant system, which allocates a fixed portion of national taxes to education, as student enrollment continues to fall while the budget swells. The current system designates 20.79% of national taxes and a portion of education taxes for primary, middle, and high school education, a structure established in 1972 to ensure stable funding.

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The current method of calculating education grants cannot be considered a rational allocation of resources considering demographic changes and fiscal conditions. It becomes a factor that hinders strategic investment.

However, over the past five decades, the number of school-aged children has significantly decreased, from 5.96 million in 2016 to 4.92 million currently. Despite this demographic shift, the education grant budget has surged from 43 trillion won in 2016 to 76 trillion won this year, including supplementary budgets. This disparity raises concerns about the efficient allocation of limited resources, especially when revenue surges, such as those driven by the semiconductor industry's boom, lead to a disproportionate increase in education funds.

Concerns about "lax spending" have surfaced in previous years (2021-2022) when semiconductor-driven tax surpluses led to a sudden increase in education grants. The Ministry of Economy and Finance is actively pushing for reforms, proposing alternatives such as linking grant increases to economic growth rates rather than a fixed percentage of national taxes. A 2021 report by the Korea Development Institute (KDI) projected that per-student education grants could increase by 5.5 times by 2060, while per capita GDP would only rise 3.8 times, highlighting the unsustainability of the current method.

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The local education finances are in a much better position than local and central governments.

The Ministry of Education, while acknowledging the need for adjustments, is exploring options such as maintaining the 20.79% linkage but setting an upper limit and using excess funds for an "education stabilization fund." They are also considering expanding the use of education grants to cover early childhood and higher education. However, the Ministry of Economy and Finance appears determined to push for a fundamental change in the allocation method, emphasizing that local education finances are in a much better position than local and central governments due to the current system.

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The imbalance in education finance investment must also be resolved.