[Why&Next] Reforming the 54-Year-Old Education Grant Formula: Reflecting Growth and School-Age Population Instead of Tax Revenue Link

Abolishing the 20.79% National Tax Allocation Link

Factoring in Economic Growth, School-Age Population, and Inflation

Enabling Budget Adjustments Based on Educational Demand

Setting Grant Funding Floor at 95% of Previous Year's Budget

As the government seeks to abolish the current linkage between local education grant funding and domestic tax revenues, a last-minute negotiation is underway between the Ministry of Economy and Budget and the Ministry of Education regarding a new formula for grants and measures to guarantee educational funding. The Ministry of Economy and Budget aims to revise the grant calculation method to reflect the declining school-age population, while the Ministry of Education is demanding stable funding for education. As a result, the two sides remain at odds in the final stages of the first major overhaul of the education grant system in 54 years.

'Mismatch' of Declining Population and Rising Budget

The current structure for local education grant funding automatically allocates 20.79% of national tax revenues, along with a portion of education tax, to provincial and metropolitan offices of education. Put simply, when the government’s tax income increases, the budget distributed to education offices also rises, regardless of student numbers. In the past, when the school-age population was surging and there was an urgent need to expand educational infrastructure such as schools and teachers, this mechanism ensured stable funding for education.

However, circumstances have changed with the pronounced decrease in the school-age population. The number of elementary, middle, and high school students is expected to decline from 10.04 million in 1980 to 5.55 million in 2025—nearly halving over 45 years. If the current system is maintained, the per-student grant for elementary, middle, and high school students is projected to rise from 12.14 million won in 2024 to 66.77 million won in 2060.

Ultimately, this creates a structure in which, even as student numbers fall, education office budgets automatically increase with economic growth and rising tax revenues. The rationale behind the Ministry of Economy and Budget’s push to revise the tax-linked model is that the current structure, which determines educational funding solely based on tax revenue and not actual student need, is now disconnected from the true demand for education.

There is also the issue of strict “budget compartmentalization.” Education grants are tied exclusively to the budgets of city and provincial offices of education responsible for K-12 education and, in principle, cannot be used for higher education or lifelong learning. Consequently, as tax revenues grow, it becomes difficult to redirect resources to areas where educational demand is increasing, leading to rigidity in the allocation of educational funding.

Yonhap News

Reflecting Educational Demand Instead of Tax Revenues

The government’s reform proposal revolves around two main pillars. First, it seeks to abolish the system that automatically allocates 20.79% of national tax revenues, instead introducing a new formula that factors in economic growth rates, school-age population, and inflation to determine grant size. In this way, budget size would be adjusted to reflect actual educational demand, moving away from the current system where grants automatically increase with tax revenues.

However, supplementary measures are also under consideration—such as setting a floor for grant funding at 95% of the previous year’s budget—in recognition that a decline in student numbers could otherwise lead to a rapid drop in educational funding. The intent is to recalibrate resources in line with demographic changes, while avoiding a sudden fiscal cliff.

The creation of a new “Future Response Fund,” using surplus tax revenues, is also on the table. The Ministry of Economy and Budget is considering the establishment of a “Talent and Education Account” within the fund to finance higher education and lifelong learning—areas that the current grant system cannot easily support. This would relax the so-called “budget compartmentalization” by broadening the scope of funding previously restricted to K-12 education to other sectors of education.

"Education Costs Do Not Decline Proportionately With Fewer Students"

The education sector is concerned that a reduction in student numbers could directly result in a sharp decrease in educational funding. They argue that, even as the student population declines, fixed costs such as personnel expenses and facility maintenance do not decrease at the same rate, and regional educational environments and new demands must also be taken into account.

For example, following mounting social concern regarding violations of teachers' rights, Gyeonggi Provincial Office of Education recently recruited 300 staff dedicated to protecting teachers' rights, and has also implemented online school programs for island and mountainous regions. Such initiatives, adjusted at the discretion of local education authorities, may be the first to be cut if grant amounts decrease, as opposed to mandatory expenditures such as personnel costs—a scenario that worries education officials.

Moreover, expenditures that are difficult for education offices to reduce continue to grow. In addition to personnel costs, fixed costs such as curriculum changes in high school credit-based systems and expanded after-school programs (“Neulbom” schools), new investment needs (such as the renovation of aging school facilities and introduction of AI education) are also on the rise. According to the National Assembly Research Service, a minimum annual average of approximately 90 trillion won will be required for the educational sector over the next 10 years. Both ministries are tentatively considering finalizing the details after consultations with the ruling party on the 20th and announcing the reform plan on the 21st.

Professor Kim Taegi of Dankook University’s Department of Economics stated, “Although the current structure, which automatically distributes resources solely to K-12 education despite the decreasing school-age population, needs reassessment in terms of cost-effectiveness, the reform should not simply cut education budgets. Instead, it should effectively reallocate resources to meet emerging demands for university-level education, lifelong learning, and talent training for the AI era.”

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