School-age population steadily decreasing... Education grants increased by 70% in 9 years

55.2 Trillion Last Year, 32.8 Trillion Increase Since 2010
Experts Say "Spending Restructuring Needed Between Central and Local Governments"

On the 8th, when the fourth phase of in-person classes for first-year middle school and fifth- and sixth-grade elementary students began, first-year students were heading to school at a middle school in Seoul. According to the Ministry of Education, 1.35 million first-year middle school and fifth- and sixth-grade elementary students attended school that day, marking 98 days since the original school start date of March 2 this year. Previously, third-year high school students first returned to school on the 20th of last month, followed by a phased return for each grade. With this day's attendance, a total of 5.95 million elementary, middle, and high school students nationwide began in-person classes for the first semester of this year. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee]#"Every year at the fiscal year-end settlement, travel expenses, staff training expenses, and business promotion expenses often remain unspent. Since leftover budgets are recorded as unused funds if left as is, they must be spent no matter what. Usually, the leftover money is used to buy snacks for students or to invite external lecturers."

A staff member A (37), working at a middle school in Gyeonggi Province, said that it is not easy to spend all the budgets allocated from the central government. Recently, due to the COVID-19 pandemic, staff training was suspended, leaving a lot of budget unused, but even that was used for facility costs necessary for basic school operations.

Despite the continuous decline in the school-age population, there are concerns that the structure of financial expenditures urgently needs restructuring as the local education finance grants (education grants) sent from the central government to local governments have increased significantly every year.

According to the Ministry of Economy and Finance on the 24th, the local education finance grants, which were only 32.3 trillion won in 2010, reached 55.2 trillion won last year. It increased by 22.9 trillion won over the past nine years. Specifically, it surpassed the 50 trillion won mark last year after being in the 40 trillion won range in 2016.

The significant increase in grants received by schools is due to the annual rise in the local education finance grant rate. Currently, 40.03% of domestic taxes are used for local finances, of which local allocation tax accounts for 19.24%, and the local education finance grant rate accounts for 20.79%. The local education finance grant rate rose by 0.52 percentage points over three years: 20.27% in 2018 → 20.46% in 2019 → 20.79% in 2020. The allocation rate for local allocation tax has been frozen at 19.24% since 2006.

The increase in the local education finance grant rate is mainly due to the strengthening of local autonomy and the improvement of education quality. However, as the number of students gradually decreases due to the declining school-age population, a surplus budget phenomenon is occurring despite the increase in budget. According to the government's special population projection (2017?2067), the school-age population (ages 6?21), which was 8.64 million in 2017, is expected to decrease to 3.64 million by 2067.

As the education grants sent to local governments increase sharply every year, even amid the government's expansionary fiscal spending, local government debt is actually decreasing. Each local education office issues local education bonds to raise funds when funds are insufficient, but as funds become abundant, they are rapidly repaying debts. An analysis by Asia Economy of central and local government debt status over the past five years from 2015 to 2020 (based on the third supplementary budget) shows that central government debt increased by 41.91%, while local government debt decreased by 8.31%. Central government debt rose from 591.5 trillion won in 2015 to 839.4 trillion won based on this year's third supplementary budget, whereas local government debt fell from 34.9 trillion won in 2015 to 32 trillion won.

Experts emphasize the need for expenditure restructuring of unnecessarily leaking budgets like local education finance amid continuously increasing welfare expenditures due to low birthrates and aging. Won Yoonhee, a professor at the Graduate School of Taxation at the University of Seoul, said, "Since welfare cannot be reduced once increased, budgets related to demographic changes such as aging and low birthrates need to be reviewed." She added, "Bold expenditure restructuring between central and local finances must be carried out." Noh Yonghwan, a professor of economics at Seoul Women's University, stressed, "Considering the decline in both the working-age and school-age populations, government and private debts need to be reexamined."

Voices calling for a major reform of the education grant system are also emerging within the government. A government official said, "Expenditure restructuring starts with adjusting unnecessary budgets between the central and local governments," adding, "Since the active fiscal stance will continue in next year’s budget, an increase in national debt is inevitable."

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