President Lee Jae-myung on the 5th rejected claims that the supplementary budget program "high oil price damage support payment" shifts a fiscal burden to local governments, saying, "That is not true. It is something you can tell with basic arithmetic." He said 80% of the funds for the high oil price damage support payment (70% for Seoul) come from the national budget and the rest from local governments, but because this supplementary budget adds an extra payment of earmarked tax, local governments will actually have money left over.
In fact, 9.5 trillion won of this "war supplementary budget (26.2 trillion won)" will be automatically distributed to local governments and provincial and metropolitan offices of education nationwide. That is because the law requires that a fixed share be automatically granted to localities as the national budget increases. The problem is that it is unclear what projects this money will be used for. Critics say we should worry about reduced fiscal efficiency.
◇ Of 25.2 trillion won, 9.5 trillion won goes to local governments and education offices
Money going from the central government to local governments is the grant-in-aid (non-earmarked tax), and money going to education offices is the grant-in-aid (earmarked tax). These are automatically transferred at fixed rates of 19.24% and 20.79%, respectively, from the national tax (excluding purpose taxes, etc.). Because budgets are built on taxes, the grant-in-aid (non-earmarked tax) and the grant-in-aid (earmarked tax) increase as the budget grows.
The same applies to the supplementary budget. Under this supplementary budget, 4.7 trillion won and 4.8 trillion won were automatically allocated to local governments and education offices, respectively. But unlike national tax-funded programs with designated uses such as the high oil price damage support payment and the oil price ceiling, the problem is that we do not know yet where this money will be spent. There are concerns that the central government will face limits in controlling and managing its use.
An official at the Ministry of Planning and Budget said the agency asked the Ministry of the Interior and Safety to cooperate by "asking local governments to execute the funds, as much as possible, on projects aligned with the purpose of the supplementary budget."
◇ Board of Audit and Inspection: "As education offices' earmarked tax rose, they scattered various subsidies"
There have long been concerns that the grant-in-aid (earmarked tax) automatically distributed to local education offices through supplementary budgets is likely to be used for projects not directly related to the supplementary budget. A Ministry of Education official said, "The additional funds from this supplementary budget will be used not only for school operating costs due to higher public utility bills caused by high oil prices, but also, depending on each education office's circumstances, for shortfalls such as facilities costs that are not directly related to the supplementary budget's purpose."
Earlier, the Board of Audit and Inspection pointed out that education earmarked tax sent additionally throughout the year, prompted by supplementary budgets and other factors, had been used indiscriminately for "cash- and welfare-type" support programs. In particular, in May 2022, the government drafted a 62 trillion won supplementary budget, of which 23 trillion won was sent to localities. That year, the money that provincial and metropolitan education offices received additionally throughout the year, including supplementary budgets (15.7 trillion won), amounted to 25% of the 63.2 trillion won initially allocated in the main budget.
The Board of Audit and Inspection analyzed that since 2018, when education earmarked tax began increasing during the year, expenditures on non-urgent projects such as ▲cash and local currency ▲digital device support (students and staff) ▲training (retreat) center installation ▲staff welfare had surged. Related expenditure was 105.2 billion won in 2018, but increased to 1.1492 trillion won in 2022.
The Gyeonggi Provincial Office of Education in 2021 paid 100,000 won per person to 1.66 million students in its jurisdiction under the title of "education recovery support payment." The Seoul Metropolitan Office of Education in 2021 paid 300,000 won per person as an "enrollment support payment" to about 140,000 new secondary school students in its jurisdiction, then expanded eligibility to elementary students the following year. At the North Gyeongsang Provincial Office of Education, it was found that in 2021–2022 more than 3,700 civil servants and public employees on fixed terms were given laptops.
◇ Overhaul of the grant-in-aid (earmarked tax) structure for educational finance has been "at a standstill" for five years
There are repeated criticisms that the grant-in-aid (earmarked tax) for educational finance continues to be provided at a fixed rate regardless of the decline in the school-age population. Despite five years of discussion on an overhaul, it is still at a standstill.
The National Assembly Budget Office said, "With the government drafting this supplementary budget, the grant-in-aid (earmarked tax) for educational finance will be granted to provincial and metropolitan education offices in an amount larger than initially expected, likely creating a considerable surplus," adding, "The government should systematically establish its budget execution plan so that local educational finance can be managed efficiently and stably going forward."
An official at the Ministry of Planning and Budget said, "Regarding the inefficiency issue, we will consider overhauling the grant-in-aid (earmarked tax) for educational finance in the process of drafting next year's budget."