Lottery fund distribution system gets first major overhaul in 20 years

The government is set to overhaul the statutory distribution system for lottery funds that has been in place for more than two decades. Eight of the 10 funds and institutions receiving mandatory shares of lottery proceeds will be removed from the statutory allocation list and shifted to a public-interest project framework, under which funding will be distributed based on project performance and actual demand. Only local governments and Jeju Special Self-Governing Province will remain as statutory recipients.

The cabinet approved the partial amendment to the Lottery and Lottery Fund Act at its 36th Cabinet meeting on Tuesday.

Under the current system, 35 percent of lottery proceeds are mandatorily distributed among 10 funds and institutions that previously issued their own lottery products. The regime was introduced when the Lottery Act was enacted in 2004 to consolidate a fragmented lottery issuance system and compensate former issuers for lost revenue.

Critics have long argued, however, that distributing proceeds at fixed ratios for more than 20 years — regardless of changes in each institution's fiscal conditions or project performance — has undermined the efficiency of fund management. This year's statutory distribution alone amounts to 1.14 trillion won ($808 million).

The government will remove eight bodies from the statutory distribution list: the Science and Technology Promotion Fund, the National Sports Promotion Fund, the Workers' Welfare Promotion Fund, the Small and Medium Venture Business Startup and Promotion Fund, the National Heritage Protection Fund, the Community Chest of Korea, the Forest Environment Enhancement Fund and Korea Veterans Health Service. Rather than automatically receiving a fixed share of lottery proceeds because they once issued lottery products, these institutions will receive lottery fund support based on project demand and performance evaluations.

Local governments and the Jeju Special Self-Governing Province Development Project Special Account will remain as statutory recipients, however. The government cited the fact that lottery proceeds allocated to these bodies have traditionally served as autonomous revenue.

To cushion the impact of the transition, the statutory distribution ratio will be changed from the current fixed 35 percent to "within 35 percent" during 2028–2030. The allowable adjustment range for individual institutions will also be widened from the current plus or minus 20 percent to plus or minus 40 percent, enabling more flexible allocation in line with performance and fiscal demand.

The total lottery fund project budget this year stands at 3.4 trillion won, up 5.5 percent from the previous year. Of that, 1.14 trillion won goes to statutory distribution projects, while 2.26 trillion won funds public-interest projects supporting low-income and marginalized groups. The overall project budget has grown by about 800 billion won over five years from 2.61 trillion won in 2021. The government plans to submit the amendment to the National Assembly and push for its swift passage.

Through this reform, the government aims to boost the efficiency of lottery fund management by allocating proceeds according to actual project performance and fiscal demand rather than fixed statutory ratios.