Experts have called for a fundamental revision of the formula that automatically allocates 20.79 percent of national tax revenue to the local education finance subsidy, saying the current mechanism fails to reflect the reality of a shrinking school-age population. They argue the system should be restructured to distribute funds based on actual education demand rather than tax receipts.
They also recommended that resources exceeding the needs of elementary, middle and high school education be deployed more flexibly to meet shifting demands in areas such as higher education and lifelong learning.
![Students arrive at an elementary school in Cheongju, North Chungcheong Province. [Newsis]](https://wimg.heraldcorp.com/news/cms/2026/07/06/news-p.v1.20260706.9bf49620c6a548ab88cd7b907754ab7f_P1.jpg)
According to government and education sector officials Monday, the local education finance subsidy is one of the central government's primary funding channels to provincial and metropolitan education offices, drawing on 20.79 percent of national tax revenue plus a portion of education taxes. Because it is pegged to national tax receipts, the subsidy automatically grows whenever tax revenue rises.
Experts said this structure is showing its limits in an era of low birth rates. Even as the school-age population shrinks, the subsidy keeps rising in step with tax revenue, widening the gap between actual education demand and resource allocation. They said the focus should shift from simply securing a stable education budget — as was the priority in the past — to building an allocation system that reflects demographic decline and evolving educational needs.
"The linkage to national tax revenue is not some immutable principle," said Woo Seok-jin, a professor of economics at Myongji University. "As student numbers fall while the subsidy keeps growing, questions are mounting about whether the money is truly needed and whether it is being spent efficiently."
Lee Kang-gu, a senior research fellow in the fiscal and social policy research division at the Korea Development Institute, also said the current arrangement is inflexible. "The beneficiaries of the education subsidy are elementary, middle and high school students, yet 20.79 percent of national tax revenue is allocated regardless of changes in the school-age population," he said. "It is more rational for the calculation method to move in tandem with demographic shifts."
Experts agreed that revising the formula tied to national tax revenue is the essential starting point for any reform.
Lee Jeong-hwan, a professor of economics and finance at Hanyang University, said the first task is to break the fixed-rate link to tax receipts. "The fixed-rate system reduces flexibility in fiscal management, so it should be abolished first, and the appropriate scale of education funding can be debated separately," he said.
Kim Woo-chul, a professor of taxation at the University of Seoul, said the most ideal approach would be to abandon the national tax linkage entirely and allocate education funds annually from the general account based on actual demand. "If an appropriate per-student education budget is set by referencing the OECD average and similar benchmarks, and then multiplied by student numbers, the necessary funding can be calculated adequately," he said.
Lee Kang-gu agreed that while changing the 20.79 percent figure would not be easy, "it is more rational to reform the system so that it reflects actual education demand rather than continuing to distribute funds automatically with no regard for the school-age population."
Woo said that severing the national tax linkage and replacing it with a connection to the economic growth rate would allow education investment to expand in line with economic growth while still delivering quality education as student numbers decline.
Experts were united in saying that the core of any reform should be the efficient allocation of resources, not a reduction in education funding. They said funding for elementary, middle and high school education should remain stable, while resources should be deployed more flexibly to meet changing demands in areas such as AI education, higher education and lifelong learning.
"It is desirable to invest the additional resources that will accumulate going forward into AI education and higher education, including universities," Lee Jeong-hwan said. "The point is not to cut the budget, but to use the increase in a way that matches future education needs."
Woo said education should not be defined solely as schooling for children and teenagers. "Higher education, lifelong learning and early childhood education all fall within the scope of public education," he said. "A structure where funds pile up on one side while other education sectors go underfunded is not desirable." Lee Kang-gu added that to build broad social consensus, the case for reform would be more persuasive if the secured funds were directed toward education sectors that have been relatively underinvested — such as universities, lifelong learning and childcare — rather than simply redirected to other fields.
Experts also raised the view that, over the long term, a more flexible framework for using education funds should be established, given that low birth rates and an aging population are diversifying fiscal needs in local communities.
Kim said that when surpluses exceed education funding needs, the excess should be made available not only for universities and lifelong learning but also for other administrative needs such as local government welfare programs. "It is also worth considering a model in which local governments and education offices — which know their communities best — jointly decide the priorities for resource allocation," he said.
y2k@heraldcorp.com
