Minister Park Hong-geun of the Ministry of Planning and Budget on the 25th announced five principles for overhauling local educational finance earmarked tax (education earmarked tax). Under the current system, the education earmarked tax is mechanically allocated as 20.79% of the national tax plus a portion of the education tax, regardless of declines in elementary, middle and high school students. As a result, some provincial superintendents have faced criticism that they spend it as a "giveaway" fund.
Minister Park's five principles center on moving away from mechanically allocating a fixed share of the national tax. The idea is to reflect the decline in elementary, middle and high school students when calculating the education earmarked tax. It also includes allowing the education earmarked tax to be used not only for elementary, middle and high school education but also for higher education. However, Park said the aggregates of the education earmarked tax and the per-student amount will increase every year going forward. In other words, there will be no reduction in the education earmarked tax compared with now.
◇ Although elementary, middle and high school students fell by 1.04 million, the earmarked tax rose by 3.3 trillion won
Park said in a post on X (formerly Twitter) that "we will unwaveringly uphold five principles regarding the overhaul of the earmarked tax." The principles presented were: ▲ alleviating situations in which the earmarked tax fluctuates sharply depending on the national tax situation, ▲ ensuring that the aggregates of the earmarked tax and the per-student earmarked tax increase every year, ▲ reflecting changes in the school-age population, and ▲ bolstering higher, lifelong and early childhood education.
Minister Park's principles for overhauling the earmarked tax stem from criticism that the current allocation method is unreasonable. Under the Local Educational Finance Grant-in-Aid Act, the government automatically allocates 20.79% of the national tax to metropolitan and provincial offices of education. The allocation rate has steadily expanded from 12.98% in 1972 to the current 20.79%. However, since around 2010, as the number of students has declined, calls have grown to change how the earmarked tax is calculated. From 2016 to this year, the number of elementary, middle and high school students fell from 5.96 million to 4.92 million, while over the same period the earmarked tax rose from 4.3 trillion won to 7.6 trillion won.
◇ Ministry of Education opposes… significant friction expected until the law is revised
There is analysis that Park, through the X (formerly Twitter) post, effectively clarified the Ministry of Planning and Budget's standards for overhauling the earmarked tax. First, Park said the plan would "reflect changes in the school-age population." The intent is to avoid mechanically allocating the earmarked tax as a fixed share of the national tax, even as the number of elementary, middle and high school students continues to decline.
Park also said the plan would "ensure that the aggregates of the earmarked tax and the per-student earmarked tax increase every year." Earlier, the Korea Development Institute (KDI) suggested that projections for nominal growth should be reflected when calculating the earmarked tax. If the ratio of the school-age population relative to the total population rises from a year earlier, the earmarked tax should grow at a growth rate higher than the nominal GDP growth rate, and in the opposite case, it should grow at a rate lower than the nominal GDP growth rate.
Park also said the plan would "bolster higher, lifelong and early childhood education." Currently, the earmarked tax is limited to elementary, middle and high school education, but the scope would be expanded to higher education, lifelong education and early childhood education. If implemented, it could help revitalize regional universities and ease the low-birthrate problem.
In addition, Park said the plan would "alleviate situations in which the earmarked tax fluctuates sharply depending on the national tax situation." The earmarked tax not only receives an automatic allocation as a fixed share of the national tax, but also gets an additional allocation when there is excess revenue. This year, 7.6 trillion won has been allocated as the earmarked tax, and there is an outlook that, if a semiconductor boom lifts tax receipts, up to around 2.0 trillion won more in earmarked tax could be allocated.
Until now, the Ministry of Education has opposed overhauling the earmarked tax. Observers say Park's remark that "the aggregates of the earmarked tax and the per-student earmarked tax will increase every year" appears mindful of this. There is analysis that coordination among ministries and the process of revising the law may not proceed smoothly.