The Ministry of Planning and Budget's fiscal structure innovation task force (TF) has proposed to the Ministry of Education a plan to operate the grant-in-aid (non-earmarked tax) and the grant-in-aid (earmarked tax) in an integrated way, according to reports on the 8th. As restructuring of rigid expenditure ahead of drafting next year's budget bill gains steam, the education grant-in-aid has emerged as a key target for overhaul.
However, the Ministry of Planning and Budget and the Ministry of Education differ on the remedy. The Ministry of Education is said to oppose the planning ministry's proposal and has indicated it prefers changing the current formula that allocates 20.79% of national tax to the earmarked tax.
◇ student numbers fall but education offices' funds rise
The education grant-in-aid is a funding source for education offices nationwide to spend on elementary, middle, and high school education costs, with 20.79% of national tax automatically distributed each year. Introduced in 1972 during a population boom, it has been maintained for more than 50 years. Recently, even as the school-age population declines, the structure allows education office funding to grow with rising tax revenue, fueling continued debate over fiscal inefficiency.
This year's education grant-in-aid totals 76 trillion won, including the supplementary budget. The National Assembly Budget Office projected that if the structure remains unchanged, the earmarked tax will increase to 85.5 trillion won by 2029. Over the same period, the school-age population is expected to fall from 5.11 million to 4.33 million.
Accordingly, new local education bonds issued by city and provincial education offices have remained at "0 won" for eight straight years. This contrasts with the central and local governments issuing bonds annually to cover funding shortfalls. Analysts say education offices receive relatively ample resources.
◇ Ministry of Planning and Budget's first fix is "tearing down silos"
Reviewing the overhaul of the education grant-in-aid, the Ministry of Planning and Budget is said to have prioritized a plan to combine into one the pockets of the grant-in-aid (non-earmarked tax) used by local governments and the grant-in-aid (earmarked tax) used by education offices. Currently, 19.24% and 20.79% of national tax are allocated to the non-earmarked tax and the education grant-in-aid, respectively. The idea is to give the combined 40.03% to the local level and let them decide how to spend it on local administration and education. The Presidential Committee on Policy Planning under the Lee Jae-myung administration also discussed this last year.
As the school-age population declines and demand for education falls, while other local administrative needs such as care, welfare, and regional infrastructure grow, the aim is to use the same resources more efficiently. A government official said, "A structure that strongly separates local administration finance and educational finance, as in Korea, is rare internationally."
The Ministry of Education is said to have strongly opposed this plan. An education-sector official said, "Under the current election system where local government heads and superintendents are elected separately, it's impossible," adding, "It's risky because it cannot secure education finance."
◇ Ministry of Education: "Rather than integration, revise the 'national tax-linked' formula"
The Ministry of Education is said to be open to considering a plan to revise the formula that allocates a fixed share of national tax to the earmarked tax. A Ministry of Education official said, "We are reviewing it with top priority on ensuring stability."
Previously, in 2021, senior research fellow Kim Hak-su at the Korea Development Institute (KDI) proposed setting the earmarked tax by applying the nominal growth rate to the previous year's grant while also accounting for the declining school-age population. For now, this approach is cited as the most realistic formula reform plan.
Another alternative the government could review is adjusting the distribution structure of the education tax. The grant-in-aid (earmarked tax) draws on not only 20.79% of national tax but also part of the education tax levied on various taxes. Currently, the education tax is split between special accounts related to early childhood education and higher lifelong education and the grant-in-aid (earmarked tax); the idea is to exclude the portion that goes to the earmarked tax.
This year, the education tax allocated to the education grant-in-aid totals 175.87 billion won. However, since most of the earmarked tax comes from the national tax-linked portion, adjusting the education tax distribution is viewed as more of a supplementary measure than a fundamental cure.