Korea’s education subsidies to top $77 bn in 2027, gov’t struggles with finance

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Education subsidies in South Korea are projected to exceed 100 trillion won ($76.6 billion) for the first time in 2027, up 30 trillion won in four years from 75.8 trillion won this year, raising questions about indiscriminate budget allocation as the government struggles with a fiscal deficit.

According to Maeil Business Newspaper’s analysis of education grant trends released by the Ministry of Economy and Finance and an estimated number of primary and secondary students by the Ministry of Education on Monday, education subsidies are projected to reach 106.4 trillion won in 2027. Education grants per student are expected to exceed 200 million won for the first time in three years.

The entire education subsidy comprises 97 percent of regular grants and 3 percent of special grants. This year, regular grants are worth 73.53 trillion won and special grants 2.23 trillion won. Regular grants are used for staff labor costs, school operating expenses, and educational administrative expenses while special grants are given to local governments to establish and manage educational institutions or educational administrative institutions.

Special grants have been the target of criticism as the education ministry is not required to report the criteria, details and distribution amount to the National Assembly in contrast to regular grants that are subject to the requirement.

Education grants come from various sources of tax revenues. Grants are financed by 20.79 percent of internal tax revenue and a portion of education tax revenue. They are transferred from the central government to city and provincial education offices and account for about 70 percent of their income.

As a result, education finance overflows while national finance is staggering.

According to the Economy Ministry, the management fiscal deficit stood at 98 trillion won between January and November last year. The management fiscal balance is an indicator of the government’s current fiscal state as it excludes social security funds such as the national pension from the integrated fiscal balance.

[Photo by MK DB]

The management fiscal balance has continued to see a deficit of around 100 trillion won for the third consecutive year since 110 trillion won in 2020. The government plans to reduce this year‘s deficit to 58.2 trillion won.

Yet, it remains to be seen if the plan will go as planned as the target is based on the success of the fiscal consolidation plan to keep the management fiscal deficit to below 3 percent of gross domestic product (GDP).

There are growing calls for a reform in giving out education subsidies in line with demographic changes. Subsidies are expected to be reduced and education offices will be able to manage finances more efficiently once the declining trend of school age population is reflected in the subsidy allocation. This way, the tax income previously set aside for the grants can be used elsewhere to enhance the soundness of government finance.

The Yoon Suk Yeol administration has introduced a special account for higher and lifelong education support to use some of the education subsidies for university support this year. However, concerns remain that it will not be sufficient to drastically reduce the leakage of elementary, middle and high school education funds.

It is a dominant view that the current structure of linking internal tax to education subsidies should be eliminated to fundamentally revamp the education subsidy system.

The reform, however, is expected to face strong opposition from the education circle on concerns over the reduced education budget.

“It will not be easy to remove the internal tax linkage as interest groups such as teachers are involved,” said Kim Jeong-sik, a professor of economics at Yonsei University.

The Ministry of Economy also said in August last year that it agrees with the “need to abolish the current structure that links educational grants to internal taxation” but a reform is “likely to face a setback in reaching a social consensus due to strong opposition from the elementary and secondary education circles.”