The local education funding program, which mandated the allocation of approximately 20% of domestic taxes, is set to be abolished, with projections indicating that the future response fund could exceed 100 trillion won.
According to Yonhap News on August 20, the government is expected to announce plans for the reform of the funding program and the establishment of the future response fund in the near future.
Since the introduction of the funding law in 1972, 20.79% of domestic taxes have been automatically allocated to this program. However, concerns have been raised about the need to lower or abolish the funding ratio due to declining birth rates, a shrinking school-age population, and increasing welfare costs.
As a result, the government is reportedly considering the abolition of the domestic tax linkage system after 55 years. However, the method for calculating the funding is expected to change, using the average growth rate of the last three years multiplied by 35% of the change in the school-age population.
Based on this new calculation, next year's funding is expected to be around 80 trillion won, a decrease of about 20 trillion won compared to the previous method. Nevertheless, as initially announced by the Ministry of Strategy and Finance, the total funding amount and the per-student funding will increase.
This year's supplementary budget estimates the funding at 76.4 trillion won, with next year's total funding projected to increase by about 5%. As the number of students decreases, the per-student funding will rise.
However, given the ongoing backlash from the education sector, there are expectations that the new future response fund law may include provisions for compensating the funding shortfall.
The future response fund, which the government plans to establish, will be based on additional tax revenues. The Ministry of Strategy and Finance has previously stated that it will allocate increased corporate taxes from the semiconductor boom to the future response fund.
Based on existing calculations, the long-term trend suggests a likely average annual increase of 6.1% in domestic taxes over the next 10 to 20 years. Applying this to this year's supplementary budget, next year's domestic tax revenue is projected to be 390 trillion won.
The Ministry of Strategy and Finance also forecasts next year's national tax revenue to exceed 500 trillion won. Considering that domestic taxes account for 90% of national tax revenue, domestic taxes are expected to exceed 450 trillion won next year.
Based on these projections, subtracting the long-term trend estimate from next year's domestic tax forecast suggests that the future response fund could reach 60 trillion won plus additional amounts. If 20 trillion won is saved from the funding reduction, the future response fund is expected to exceed 80 trillion won.
If the national tax revenue progress rate in the first half of this year continues through the end of the year, it could increase by 25.3 trillion won compared to the estimates in the supplementary budget. Considering this, there are predictions that the future response fund could exceed 100 trillion won.
* This article has been translated by AI.
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