Local Education Finance Grants Accumulate Despite Declining Student Numbers

20.79% of Domestic Taxes Allocated to Local Education Finance Grants
Grants Significantly Increase Despite Declining School-Age Population Due to Rising Domestic Taxes
Improvement Plans Including Integration with Local Finance in Grant Taxation Method Reform

[Asia Economy Reporter Naju-seok] There are calls to reform the Local Education Finance Grant, which is uniformly imposed on domestic taxes. With the school-age population decreasing and local education offices unable to fully utilize their increased budgets, while the central government’s debt is rising, the overall national resource allocation is being operated irrationally.

On the 23rd, the National Assembly Budget Office introduced current issues and reform plans under discussion related to the Local Education Finance Grant in a report titled “Trends in Discussions on Reforming the Local Education Finance Grant.”

On the 2nd, when normal attendance was resumed at all schools nationwide, students at Gwangjang Elementary School in Gwangjin-gu, Seoul, received related guidance from their homeroom teacher. 2022.05.02 Photo by Joint Press Corps

Currently, 20.79% of domestic taxes are allocated as part of the education tax to the Local Education Finance Grant. This grant is collected by the central government and transferred to metropolitan and provincial education offices, accounting for 70% of their budgets. Due to factors such as the recent increase in domestic taxes, the Local Education Finance Grant, which was 41.1 trillion KRW in 2013, has increased to 81.3 trillion KRW this year. Accordingly, the Local Education Finance Grant per school-age individual reached 15.28 million KRW this year, more than double the 6.25 million KRW level in 2013. The problem is that while socioeconomic conditions such as the declining school-age population are changing, the system of the Local Education Finance Grant remains unchanged.

Metropolitan and provincial education offices already hold 6.1 trillion KRW as of last year in reserves such as net surplus funds, integrated financial stabilization funds, and education facility environment improvement funds. Money is accumulating internally. On the other hand, the central government is experiencing a widening gap with rapidly increasing debt, leading to a rich-get-richer, poor-get-poorer phenomenon.

The Budget Office concluded, "While the financial capacity of metropolitan and provincial education offices is improving, the central government’s financial burden is increasing, making the overall national resource allocation irrational."

There were also criticisms that financial conditions differ across education sectors. For example, government expenditure per capita in elementary, middle, and high school education exceeds the OECD average, whereas university education falls short of the OECD average.

Recently, the government has been considering measures to revise the Local Education Finance Grant system to be linked and utilized with higher education such as universities. This means linking the education finance grant to the expansion of higher education funding so that it can also be used for universities.

However, academia argues that the grant calculation method should be changed. They suggest setting the Local Education Finance Grant by reflecting income growth, inflation, and changes in the school-age population, or changing the calculation method according to educational demand. Instead of receiving the grant as a fixed percentage of domestic taxes, support should be provided based on the required amount.

More fundamentally, there are calls to integrate and consolidate local education finance with general local finance. Lee Sang-min, senior research fellow at the Nara Salrim Research Institute, said, "The integration of local government and education office finances is the only solution." He pointed out, "According to Article 12, Paragraph 2 of the Special Act on Local Autonomy Decentralization and Local Administrative System Reform, the state must strive for the integration of educational autonomy and local autonomy," adding, "Not striving for the integration of local government and education office finances is illegal." The Budget Office also introduced that "there are opinions that integration and consolidation of local education finance and general local finance should be achieved as a long-term task."

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