THE COMPLEXITY OF EDUCATION FUNDING: AN OPPORTUNITY FOR REFORM?
By Sylvia Montoya, Director, UNESCO Institute for Statistics
Education lies at the heart of global discussions on building more integrated and equitable societies. Governments worldwide have significantly increased resources for education to reduce poverty, improve health, and promote democratic coexistence. But is there enough spending and enough fiscal effort?
Analysis of education expenditure data usually focuses on distribution of public resources to students, teachers and schools by educational level. But, it is equally important to examine the sources of funding that can have a significant impact on income distribution and poverty.
To understand this impact, it is essential to review the tax structure, its efficacy and its role in the redistribution of income, as well as the use of other funding sources such as public debt (which threatens fiscal sustainability) and Official Development Assistance (ODA).
THE LIMITATIONS OF ANALYZING SPENDING PER STUDENT
Expenditure per student sheds light on investment levels and the differences in student opportunities by region, but not the quality or efficiency of spending.
While North America, Europe and Central Asia have the highest average government spending per primary and secondary students (in terms of GDP), sub-Saharan Africa and South Asia spend more in proportion to their means compared to other regions.
A NUANCED LOOK AT COUNTRY-LEVEL SPENDING
Expenditure on education as a percentage of both GDP and total government spending indicates the weight of education in the national budget.
Data for 2011 shows that South Asia spends the least on education as a percentage of GDP, at 3.8 per cent, while Latin America and the Caribbean, Europe and Central Asia invest the most, at 5.2 per cent and 5.1 per cent of GDP respectively – above the global average of 4.5 per cent.
Education expenditure as a percentage of total government spending is another indicator of a country’s commitment to education. The regions with the lowest average spending are North America (11 per cent) and Europe and Central Asia (12 per cent), while Latin America and the Caribbean (16.9%) and sub-Saharan Africa (16.6 per cent) spend the most.
Using both indicators allows for a more nuanced perspective on education financing. For example, North America has a relatively high value in terms of GDP, but a low value in terms of total government expenditure. Given the wealth of the region, one would have expected to see a strong commitment to education in terms of total government expenditure, yet in relative terms they are spending less.
TAXATION IS ONLY PART OF THE EQUATION
While taxes play a central role in income distribution, in terms of education expenditure, countries don’t only rely on their own resources. They can also receive transfers that can exceed their own revenues.
Education expenditure is influenced by tax structure and efficiency. Tax revenues include consumption taxes or indirect taxes and income taxes directly from individuals and businesses. A tax structure based primarily on indirect taxes severely limits the redistributive capacity of the tax system, and is highly inefficient compared to direct taxes based on an individual’s level of income.
One in three companies in Europe and Central Asia do not report sales information for tax purposes. The rates are even higher in East Asia and the Pacific and in sub-Saharan Africa, where more than half of companies do not report data.
Taxes can create distortion in an economy by modifying individual behaviour and income distribution. Of course, taxes relative to income varies among countries. While the tax burden in the United States and 15 countries in the European Union increases with income quantiles (expressed by a ratio higher than 100), the opposite is true in many Latin American countries. The relative tax burden is higher for the lower quantiles in El Salvador, Guatemala and Nicaragua, where the poorest lose more of their income to taxes than their wealthy counterparts.
DO WE NEED TO REFOCUS OFFICIAL DEVELOPMENT ASSISTANCE?
ODA is another source of education funding. The regions which receive the highest net ODA – South Asia and sub-Saharan Africa – spend the least on their primary and secondary students. South Asia has the highest proportion of population, globally, of compulsory school-age children. Sub-Saharan Africa has the largest population of compulsory school-age children living in low-income countries.
Financial aid should be designed in such a way as to avoid crowding out or distorting domestic financing. It should be aligned with country-led programmes and agendas, encouraging ownership and investment in statistics for evidence-based decision-making. There is a need to ensure targeted and long-term funding.
To achieve sustainability and social development, and reduce inequality, countries need to focus on better taxation policies and efficient use of ODA along with effective strategies to lower debt.
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