Mandatory 35% Lottery Proceeds Distribution Abolished... Full Competition for 8 Funds from 2031

Lottery Proceeds of 1.1 Trillion Won to Be Distributed Under Fully Competitive System

Smooth Transition Over 3-Year Grace Period With Performance-Based Adjustments of Up to ±40%

The government will remove the “mandatory distribution barrier” that has resulted in lottery proceeds of around 1 trillion won being routinely allocated to certain public institutions every year for more than 20 years. Moving away from a system where funds were divided in accordance with legally mandated ratios—regardless of business performance or financial status—the government will shift to a fully competitive regime that prioritizes budgets for top-performing projects. This marks the largest overhaul of the lottery proceeds allocation structure since the enactment of the Lottery Act in 2004, occurring 22 years after the law was established.

On August 18, the government deliberated and approved a proposed partial amendment to the “Lottery and Lottery Fund Act” during a Cabinet meeting. Under the revision, from 2031 onwards, the requirement to distribute lottery proceeds to eight funds—namely the Science and Technology Promotion Fund, National Sports Promotion Fund, Workers’ Welfare Promotion Fund, Small and Medium Enterprise Promotion Fund, National Heritage Protection Fund, Community Chest of Korea, Forest Environment Function Enhancement Fund, and Korea Veterans Welfare and Medical Service (KVWM)—will be entirely abolished and replaced by a focus on public interest projects. If a fund’s project does not deliver proven results, it will not receive any allocation from the lottery fund. However, the existing mandatory distribution will remain for two entities: local governments that previously issued their own lotteries and the Jeju Special Self-Governing Province Development Special Account, given the nature of their independent financial resources.

The current Lottery Act—which unified the lottery issuance system in 2004—has mandated that 35% of lottery proceeds be distributed to ten organizations to compensate them for revenue lost from previous lottery-issuing bodies. As of this year, 1.143 trillion won (33.6%) out of a total lottery fund of 3.4028 trillion won is earmarked for these organizations. However, the system has been criticized for failing to adequately reflect the financial position and performance of each organization, thereby perpetuating “fiscal waste and inefficiencies due to rigid allocation barriers.”

To mitigate budgetary shocks to frontline institutions and ensure a smooth transition, the government has introduced a buffer mechanism. From 2028 to 2030, for three years, the distribution ratio will change from the current “fixed 35%” to “up to 35%,” and the performance-adjustment range will be dramatically expanded from the current ±20% to a maximum of ±40%, as a temporary special exception. Institutes with poor performance will see up to 40% of their budgets reduced, while top-performing organizations will receive up to 40% more, encouraging them to gradually adapt to a competitive environment. After this transition period ends in 2031, the mandatory distribution ratio for the eight organizations will be entirely eliminated. From then on, funding will be allocated on a priority basis only to projects aligned with the goals of the lottery fund—such as welfare for vulnerable groups—and displaying strong policy effectiveness under a fully competitive system.

The Lottery Commission of the Ministry of Planning and Budget stated, “This reform will trigger the efficient allocation of lottery proceeds according to business demand, and establish a feedback system based on performance evaluation, rather than the current system of mandatory distribution by legal ratio.” The commission also said, “We will submit the approved amendment to the National Assembly and strive for its swift passage.”

This content was produced with the assistance of AI translation services.