The semiconductor industry is once again providing a boost to the national economy, with significant increases expected in corporate tax revenue. This is welcome news; however, from a fiscal research perspective, the immediate question is how to allocate these funds. If the increased revenue is spent entirely in the current fiscal year, a downturn in tax revenue could lead to renewed burdens of issuing government bonds and restructuring expenditures.
The government aims to save surplus tax revenue in a Future Response Fund to invest in growth drivers and talent in youth, local areas, and education. This strategy also serves as a financial stabilization resource during periods of declining revenue. To mitigate the fluctuations in fiscal management that accompany economic cycles, it is essential to establish sufficient buffer resources in advance.
A key component of this process is the Local Education Financial Grants. Adjusting the grant structure, which is automatically linked to domestic tax revenue, is crucial for breaking down fiscal silos. Currently, 20.79% of domestic tax revenue is automatically allocated to primary and secondary education. This system enabled stable educational investment during times of absolute resource scarcity and played a decisive role in South Korea's growth through education. However, the environment surrounding this system has changed significantly over the past half-century.
The school-age population has decreased from 8.8 million in 2010 to 5.91 million in 2025, a drop of about 33%. During the same period, Local Education Financial Grants increased from 32 trillion won to 70 trillion won, a rise of 118%. This indicates a divergence between the number of students and available resources. Moreover, the structure linked to domestic tax revenue causes rapid increases in education funding during times of high tax revenue, followed by declines when revenue falls. It is not ideal for educational finance, which requires multi-year planning for teachers, school facilities, and digital transformation, to fluctuate with economic and tax revenue changes.
The purpose of this reform is not to reduce funding for primary and secondary education; such reductions are unacceptable. The new design reflects economic growth, inflation, and changes in the school-age population, accounting for only 35% of the decrease in that population. If the calculated grant amount is lower than the previous year, the government will cover the difference. This approach acknowledges expenditures that cannot be adjusted quickly, such as personnel costs and school facilities, while gradually reflecting changes in the economy and demographic structure. The goal is to maintain stability while aligning the growth rate more closely with actual fiscal needs.
Importantly, the resources secured through this process will not disappear outside of education. They will be reinvested in early childhood education, higher education, research talent, adult retraining, and lifelong learning through the Future Response Fund's education and talent account. In fact, as of 2022, per-student public education spending for primary and secondary education significantly exceeds the OECD average, while higher education spending remains at about 70% of the average. This highlights the need to examine the tiered investment structure. The reform is not about diminishing the importance of education but rather about expanding its horizons.
Our students continue to demonstrate high academic capabilities. In the OECD PISA 2022 assessment, South Korean 15-year-olds outperformed the OECD average in mathematics, reading, and science. However, the Adult Skills Survey (PIAAC) revealed that literacy, numeracy, and problem-solving skills among adults aged 16 to 65 were below the OECD average. This indicates that the education system is not yet sufficient to maintain and develop the skills acquired in school throughout adulthood.
Artificial intelligence and digital transformation are rapidly changing the landscape of lifelong learning. In a society where people need to work longer, opportunities for middle-aged and older individuals to learn new skills are essential. Universities must also expand their roles as hubs for lifelong learning that supports advanced technology, foundational disciplines, and career transitions.
This is why the timing is critical. Although the need for reforming the domestic tax-linked system has been raised multiple times, concerns that it might reduce support for primary and secondary education have hindered actual changes. Now, with additional tax revenue potential, it is an exceptional time to maintain stable funding levels for primary and secondary education while also securing resources for new educational demands. Fiscal reforms can be pursued more effectively when there is a surplus rather than a shortage of resources.
However, the reform's objectives will only be fully realized if a management system is established to ensure that the resources transferred to the education and talent account are used for their intended educational purposes. While the previous domestic tax-linked system supported educational advancement, a new framework is now required to broaden learning opportunities from early childhood to old age based on those achievements. It is essential to allocate resources in a way that maintains the stability of primary and secondary education while adapting to changing demographics and national priorities. Reforms should be undertaken when they are feasible, not just when they are necessary. This is why there may not be a better time than now to pursue the reform of Local Education Financial Grants.
* This article has been translated by AI.
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