The government's drive for 'expenditure efficiency' is encountering a setback. The National Assembly passed a bill led by the Democratic Party of Korea to extend national funding for free high school education for an additional three years and mandate government support for local love gift certificates (local currencies) issued by local governments. This has raised concerns that the legally determined 'mandatory expenditure' will increase by about 1 trillion won annually, leading to a greater burden on government finances.
According to the government and the National Assembly on the 9th, the National Assembly passed amendments to the 'Grant-in-Aid for Educational Finance Act' and the 'Act on the Promotion of the Use of Local Love Gift Certificates (Local Currency Act)' during a plenary session on the 4th. Both bills had been discarded due to the veto rights exercised by the previous Yoon Suk-yeol administration but have been reintroduced under the administration of Lee Jae-myung.
The amendment to the Grant-in-Aid for Educational Finance Act contains provisions to extend national funding for free high school education, initiated during the Moon Jae-in administration, by three more years (47.5% of total costs). Initially, this provision was set to end at the end of last year but will now be applicable again until the end of 2027. Other educational expenses will be borne by the provincial and city education offices (47.5%) and local governments (5%), respectively.
With the passage of the Grant-in-Aid for Educational Finance Act amendment, the government will need to provide about 472.4 billion won just in the second half of the year. It is expected that mandatory expenditures of around 930 billion won will continue for another two years. According to an analysis by the National Assembly Budget Office, if the provision were to end, the additional burden on each provincial and city education office would be 924.8 billion won in 2026 and 930.2 billion won in 2027.
The amendment to the Local Currency Act also acts as a factor placing a burden on government finances. The amendment stipulates that starting next year, the national government must provide mandatory financial support for the local currencies issued by all local governments at a certain percentage. Previously, whether or not to provide government support was at the discretion of the administration, and cities such as Seoul, Seongnam, and Hwaseong, categorized as 'non-beneficiary entities (local governments with financial surpluses not receiving general grants)', had been excluded from receiving national funding.
However, with the amendment of the law, these local governments will also be included in the list of national funding beneficiaries without exceptions. Currently, the national funding support rate is a basic 2%, with an increase to 5% for areas experiencing population decline. Local governments believe that cities like Seoul, Seongnam, and Hwaseong will likely also apply the 2% support rate.
The planned issuance of local currencies by Seoul, Seongnam, and Hwaseong this year is 910 billion won, 750 billion won, and 500 billion won, respectively. If they issue similar amounts next year, it means the government will need to take on an additional burden of about 43.2 billion won.
The government has secured 1 trillion won in its budget for national support of local currencies through the first and second supplementary budgets this year, but as Lee Jae-myung has highlighted the promotion of local currencies as a key pledge, the total issuance amount may rise further in the future.
With the passage of these two bills, a new legal mandatory expenditure of 1 trillion won has emerged, which raises concerns as it contradicts the government's financial stance.
The government emphasizes the active role of finances as a catalyst for economic recovery this year. Specifically, as Lee Jae-myung has repeatedly instructed to enhance expenditure efficiency, even mandatory expenditures, which had been regarded as 'sacred', have come under restructuring. Nevertheless, the National Assembly has decided to expand the area of mandatory expenditure.
A government official noted, 'It is true that the passage of the bill will lead to an increase in mandatory expenditures, and from the perspective of the financial authorities, this is somewhat disappointing.'