[Editorial] Abolishing the automatic 20.79% allocation of education grants: overdue but essential fiscal reform

The Ministry of Planning and Budget has presented to the Ministry of Education a proposed amendment to the Local Education Subsidy Act that would abolish the current system under which local education grants are automatically allocated at 20.79% of domestic tax revenue. The amendment proposes calculating the total grant amount based on the previous year’s grant, while reflecting the average current-account growth rate and the rate of change in the school-age population over the most recent three years. The Ministry of Education has effectively expressed its opposition, arguing that the current statutory grant rate must be maintained.

The Center for Free Enterprise (CFE) welcomes the Ministry of Planning and Budget’s formal proposal to abolish the fixed-rate linkage to domestic tax revenue. Reform of local education grants is not a call to reduce investment in education, but rather an effort to correct the irrational structure in which local education office budgets automatically increase whenever tax revenue rises, regardless of student numbers, educational demand, or fiscal conditions.

The biggest problem with the current system is that the scale of education finance is determined by domestic tax revenue rather than educational demand. Even if the number of students declines, education grants increase whenever tax revenue rises due to a boom in the semiconductor industry or an increase in real estate transactions. Conversely, when tax revenue falls, grants are sharply reduced even if student numbers and educational demand remain unchanged. A structure in which education finance is driven not by educational conditions but by fluctuations in the economy and tax revenue is neither stable nor rational.

In fact, the number of elementary, middle, and high school students fell by about 1 million, from 5.96 million in 2016 to 4.92 million in 2026, but during the same period education grants increased by about KRW 33 trillion, from KRW 43 trillion to KRW 76 trillion on the basis of the supplementary budget. It is difficult to justify, simply in the name of expanding investment in education, a situation in which the number of students declines while funding automatically increases.

The Ministry of Education argues that 20.79% of domestic tax revenue is a legal safety net guaranteeing investment in education. However, permanently earmarking a fixed share of national tax revenue for a specific sector may serve as a safety net for education, but it can also become a mechanism that entrenches rigidity in fiscal management. If only the education budget is guaranteed to increase automatically, it becomes difficult to rationally adjust priorities among other national tasks such as national defense, welfare, science and technology, responding to low birth rates, and higher education.

The Ministry of Education’s alternative proposal to expand the use of surplus grants to infants and young children, universities, and lifelong education is also not a fundamental solution. Expanding spending categories after excessive funding has already been allocated is less about distributing the budget according to need and more about finding new spending targets to use up already-secured funds. Budgets should not be set first in size and only then matched with spending purposes; they should be allocated only as needed after verifying policy demand and the effectiveness of programs.

That said, the Ministry of Planning and Budget’s reform proposal must not itself harden into a new automatic formula. It is difficult to explain all the fiscal needs of local education offices nationwide based only on the current-account growth rate and the rate of change in the school-age population. The total amount of grants and the regional allocation should be determined by reflecting factors such as regional student numbers, the number of schools, overcrowded classes, small rural and fishing-village schools, staffing structures, aging facilities, and demand for new schools, while also relying on objective cost analysis and program evaluation.

In the process of grant reform, a sufficient transition period must also be provided so that essential educational services such as personnel costs for faculty and staff, safety improvements for aging schools, and special education are not suddenly curtailed. At the same time, reforms should be accompanied by adjustments to teacher quotas in line with the declining number of students, the consolidation of small schools, reorganization of local education office funds, the abolition of overlapping programs, and stronger performance evaluation. If only the grant formula is changed while the structure of education spending remains untouched, the effects of reform will inevitably be limited.

Local education grants are not the exclusive property of the education sector, but tax revenue paid by the people. Rather than focusing only on preserving the statutory grant rate, the Ministry of Education and metropolitan and provincial offices of education must first explain how the funds they have secured have contributed to improving student academic performance and educational services. Fiscal stability does not come from a fixed ratio, but from spending outcomes the public can trust and from transparent accountability.

The government and the National Assembly must not once again postpone reform discussions because of opposition from the education sector. The automatic linkage of 20.79% of domestic tax revenue should be abolished, and a new local education finance system should be established that reflects the school-age population, actual educational demand, and national fiscal conditions. This reform should not be a measure to shrink education, but the starting point for normalizing public finance by using limited resources more responsibly for students and future generations.

2026. 7. 22.

Center for Free Enterprise (CFE)

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Original title: [논평] 교육교부금 20.79% 자동배분 폐지, 늦었지만 반드시 가야 할 재정개혁이다

Author: Center for Free Enterprise (CFE)

Date: 2026-07-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=comment&pn=1&idx=29302