Fewer Students, Subsidies Near 100 Trillion Won... Time to End the `20.79% Automatic Allocation`

The Ministry of Planning and Budget has sent the Ministry of Education a revision proposal to abolish the current method of automatically allocating 20.79% of domestic tax revenue to the Local Education Financial Grant. The idea is to calculate the total amount based on the previous year’s grant, while reflecting the average current-account growth rate over the past three years and changes in the school-age population. The Ministry of Education argues that the statutory grant rate is a safeguard that preserves the stability of education finance and is therefore difficult to accept.

However, the essence of this debate is not whether to cut or protect the education budget. The real issue is whether to continue maintaining a structure in which the size of tax revenue, rather than the number of students and actual educational demand, determines the budgets of provincial offices of education. When domestic tax revenue rises because of strong corporate performance and a semiconductor boom, the grant automatically increases even if student numbers fall. Conversely, when the economy slows and tax revenue declines, education funding fluctuates regardless of the needs in schools. It is a paradox in which a system designed for stability makes education finance subordinate to the business cycle and tax revenue.

The decline in the school-age population is no longer a forecast but a reality. The number of elementary, middle, and high school students fell by 2.93 million, from about 7.95 million in 2000 to about 5.02 million in 2025. According to Ministry of Education projections, it will decline further to about 3.81 million by 2031. That means another 1.2 million students will disappear in just six years. Meanwhile, the Local Education Financial Grant surged from 60.5 trillion won in 2019 to 81.3 trillion won in 2022, and 71.7 trillion won has been budgeted for 2026. There are even projections that, if the current system remains unchanged, it could reach around 100 trillion won next year.

There is nothing inherently wrong with rising education spending per student. Adequate investment is needed to reduce overcrowded classes and improve special education, basic academic proficiency, aging facilities, and digital education. The problem is that budgets are not being drawn up by first examining which programs are needed and how much they will cost, but instead by first securing a fixed share of revenue and then looking for ways to spend it. If 20.79% of domestic tax revenue functions like a permanent entitlement for the education sector, the budget is guaranteed regardless of educational outcomes, and the spending accountability of provincial offices of education is bound to weaken.

Every budget entails an opportunity cost. The more resources are automatically allocated to provincial offices of education, the less funding is available for national defense, research and development, industrial competitiveness, responses to low birth rates and regional decline, and higher education and vocational education. In particular, at a time when the working-age population is shrinking and competition for talent in artificial intelligence and advanced industries is intensifying, fixing all increases in tax revenue to elementary and secondary education alone is also inconsistent with a national human resources strategy.

The direction of reform should not be simple cuts, but a shift from “automatic allocation” to “demand- and performance-based allocation.” The school-age population should remain a basic variable, but it should be considered together with actual regional demand, including the number of schools and classes, small rural, mountain, and fishing village schools, overcrowded classes in new towns, special education, basic academic proficiency, and the age of facilities. To prevent abrupt fiscal shocks, it is also necessary to set caps on growth rates, apply adjustment coefficients, and provide a sufficient transition period.

At the same time, autonomy for provincial offices of education must be matched by corresponding responsibility. It is necessary to review fund accumulation, unused balances, overlapping and cash-based programs, and spending driven by short-term popularity, and to disclose what results the grant has produced in terms of academic achievement, narrowing educational gaps, school safety, and improved educational services. More important than guaranteeing the total amount is explaining the results to taxpayers.

The fiscal room created by the declining school-age population needs to be reallocated to human capital investment at the national level. It should be used strategically to strengthen the competitiveness of higher education, expand vocational and lifelong education, foster advanced talent, retrain and redeploy domestic workers, improve the language and job skills of multicultural workers, and attract and retain outstanding foreign talent. If the goal of education finance remains limited to preserving the existing school system as it is, it will not be able to protect the industries and jobs of the future.

The stability of education finance does not come from a fixed share of a particular tax item. It comes from objective assessment of demand, transparent spending, and accountability for results. The proposal from the Ministry of Planning and Budget is not so much a finished answer as a starting point for correcting a distorted automatic-linkage structure. The government and the National Assembly must not once again postpone reform because of pushback from the education sector.

Student numbers are falling rapidly, and a structure in which the grant heads toward 100 trillion won simply because tax revenue has increased is not sustainable. What is needed now is not a reduction in education finance but its normalization. The automatic allocation of 20.79% of domestic tax revenue must end, and resources must be reallocated to where they are needed for the future of students and the nation.

---

Original title: 학생은 줄고 교부금은 100조 눈앞...'20.79% 자동배분' 끝낼 때

Author: Gwang yong Go

Date: 2026-07-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29315