Minister of Planning and Budget Park Hong-keun (left) and Education Minister Choi Kyo-jin attend a public forum on reforming the local education finance grant system at Government Complex Seoul in Jongno-gu, Seoul, on July 8. [Yonhap]
Minister of Planning and Budget Park Hong-keun (left) and Education Minister Choi Kyo-jin attend a public forum on reforming the local education finance grant system at Government Complex Seoul in Jongno-gu, Seoul, on July 8. [Yonhap]

The government plans to announce as early as next week a proposal to abolish the local education finance grant system, which automatically allocates 20.79 percent of domestic tax revenue to education.

According to government ministries Wednesday, the Ministry of Planning and Budget and the Education Ministry are in final talks over a reform plan centered on scrapping the domestic tax linkage mechanism.

Since 1972, 20.79 percent of domestic tax revenue has been automatically channeled into the grants, which the central government distributes to provincial and metropolitan education offices for use in elementary, middle and high school education. The grants serve as the primary funding source for those offices.

With income and corporate tax revenues buoyed by a strong semiconductor cycle, national tax receipts are expected to exceed 500 trillion won ($353 billion). If education taxes are added on top, total grants could approach 100 trillion won next year, according to estimates.

While domestic tax revenue and the grants have grown over the long term alongside economic expansion and inflation, the school-age population in kindergartens and elementary, middle and high schools has been shrinking due to the country's low birth rate.

In 1972, when the domestic tax linkage was introduced, 952,780 babies were born. Last year that figure had fallen to 254,500 — roughly one-quarter of the 1972 level over 53 years.

Critics have argued that with grant spending restricted to early childhood through secondary education, some education offices have mismanaged the funds by expanding cash-based programs and other loosely justified expenditures.

The Ministry of Planning and Budget maintains that grant levels should reflect inflation, economic growth and demographic shifts. It argues that the current structure — in which grants automatically rise when tax revenues increase even as student enrollment falls — risks deepening fiscal inefficiency and budget waste in education finance.

The Education Ministry, while acknowledging the need for a rational overhaul, opposes outright abolition of the tax-linkage mechanism. Its alternative is to keep the linkage in place but redirect a portion of any large surplus tax revenue into a "future response fund."

The two ministries are also discussing the establishment of a "talent and education account" within the proposed future response fund, which would support early childhood education as well as higher and lifelong education, according to sources familiar with the matter.

Some observers warn that if the two ministries fail to narrow their differences, the government may not reach a unified position by the end of this month — the deadline for drafting next year's national budget proposal.

"Consultations with the Education Ministry have not been finalized, so the timing of any announcement has yet to be determined," a Ministry of Planning and Budget official said.


oskymoon@heraldcorp.com