The government has begun overhauling the local education finance subsidy system as it drafts next year's budget — marking the first serious reform of a mechanism introduced in 1972. This year's education subsidy stood at 71.7 trillion won (about $47.1 billion) in the original budget, but rose to 76.4 trillion won after an April supplementary budget. If surplus tax revenue from the semiconductor boom is factored in, the total could surpass 80 trillion won for the first time in history, with some projections putting next year's figure at 86 trillion won. Meanwhile, the number of elementary, middle and high school students this year is expected to fall below 5 million for the first time, to roughly 4.837 million. A situation in which the student population shrinks while education funding keeps growing can no longer be left unaddressed.
The education subsidy is automatically allocated at 20.79 percent of domestic tax revenue — a system designed in an era when the school-age population exceeded 10 million and classrooms were overflowing, to ensure education would never suffer from budget shortfalls. Half a century later, the school-age population has been cut in half, yet the system remains unchanged. As a result, the per-student subsidy has grown every year, estimated to exceed 16 million won ($11,500) this year, up from 14.02 million won last year. Unspent subsidies amount to roughly 20 trillion won annually. It is little wonder that education superintendent election campaign pledges such as "1 million won for every high school senior" and "40 percent support for hagwon fees" have begun to appear. Universities, by contrast, are struggling financially.
Disputes over tuition increases recur year after year, and the shortage of research funding is serious. Primary and secondary schools cannot spend their money fast enough, while higher education — which actually determines national competitiveness — is starved of resources. This perverse structure should have been fixed long ago.
The government plans to remove the firewall confining these funds to primary and secondary education, allowing universities to draw on them as well — a direction that is clearly right. The success of advanced industries such as AI, semiconductors and biotech ultimately depends on the talent and research capacity that universities and graduate schools produce. Directing the subsidy toward developing future talent and funding research and development is the appropriate use of these funds. The formula linking the subsidy to domestic tax revenue also needs to be made more rational. Virtually no other country automatically earmarks a fixed share of domestic taxes for education the way South Korea does. Major economies including the United States, Japan and Germany adjust their education budgets based on demand and fiscal conditions. Maintaining a system designed for the overcrowded-classroom era of the 1970s in an age of low birth rates makes no sense.
The education subsidy has long been treated as untouchable. Even as the school-age population plummeted and the economy transformed, successive governments shied away from fundamental reform out of concern over backlash from the education sector. The waste of national resources has been considerable. Changing an entrenched system is never easy. This overhaul of the education subsidy should serve as the starting point for correcting the outdated systems and regulations that persist throughout Korean society.
