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Box 5. Korea: Other documents annexed to the draft budget

●Guidelines for budget preparation (Art. 25).

●Gross and net amounts of the revenue and expenditure budgets, and item by item explanations.

●Explanation of measures resulting in liabilities being borne by the Treasury. A statement of the actual redemptions of national bonds and borrowing funds at the end of year before the preceding year, the presumed present amount thereof at the end of the preceding year and current years, and the annual redemption schedules.

●For measures for which liabilities are borne by the Treasury, a statement of the estimated amount of expenditure by the end of the preceding year and the amount after the current year.

●For continuing expenditures, a statement of the estimated amount of expenditure until the end of the preceding year, the pre-determined amount of the expenditure after the current year, the overall project plans and the situation of progress thereof.

●The number of personnel in budget entities and the salary assumptions for the budget proposals.

●A statement of the value of State property at the end of the year before the preceding year, and the estimated value at the end of each of the preceding and current years.

●If the budgetary amount requested by an independent institution is reduced, reasons for such reduction and the opinions of the head of the independent institution concerned.

●Other documents needed to clarify the financial situation and contents of the budget proposal.

opinion of the constitutionally independent institution affected in the State Council (Art. 29), and attach any reason for the reduction in the draft budget submitted to the National Assembly.

4.2. Budget process in Parliament

4.2.1. The timetable for budget adoption and constraints on the budget debate in Parliament

The budget review by the National Assembly begins in early October, consistent with the requirement for the National Assembly to approve the draft budget within 30 days before the beginning of the fiscal year (Constitution, Art. 54). There is no legal restriction on the time spent on

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discussion and debate in the Budget Committee and in Parliament’s plenary session. However, the NAA provides general procedures for reviewing the draft budget (Art. 84).

●After the draft budget is submitted to the National Assembly, the President (sometimes the Prime Minister on behalf of the President) will make a speech at the plenary session on the next fiscal year’s economic and fiscal policy, and the basic direction for, and the major contents of, the draft budget.

●The draft budget is first required to be referred to the competent standing committees including the Finance and Economy Committee, the Education Committee, the Agriculture, Forestry, Maritime Affairs and Fisheries Committee, the Health and Welfare Committee, and the Environment and Labour Committee. The standing committees will review the draft budget within their areas of jurisdiction and submit their reports to the Speaker.

●The Speaker is required to refer the draft budget to the Budget Committee with the reports made by the competent standing committee.

●The Budget Committee commences the examination of the draft budget by hearing an explanation of the draft budget by the MPB and by examining a report of an expert adviser in the Budget Committee. Following general and ministerial hearings, the Budget Committee will reduce or increase the budget estimates item by item.

●The Budget Committee is required to respect the contents of the preexamination report of the competent standing committees. In cases where any budget estimate is recommended to be reduced by the competent standing committee, the Budget Committee is required to seek the approval of the competent standing committee before it makes the final decision on the draft budget.

●After the Budget Committee’s examination, the Speaker calls the plenary session. The amended budget is approved by a majority vote.

The NAA (Arts. 84-2), as amended in 2001, stipulates general procedures for reviewing the Draft Fund Management Plan submitted pursuant to Article 7 of the FAFM. It requires the National Assembly to approve the draft fund management plan up until 30 days before the beginning of the fiscal year. The parliamentary review process for the public fund management plan follows the same procedures and timetable defined in the BAA.

4.2.2. Provisional budgets

The Constitution (Art. 54) provides for provisional budgets. If the draft budget is not passed by the beginning of the fiscal year, the government may, in conformity with the budget of the previous fiscal year, apportion funds for

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the following purposes until the draft budget is approved by the National Assembly: 1) the maintenance and operation of agencies and facilities established by the Constitution or law; 2) the execution of the obligatory expenditures as prescribed by law; and 3) the continuation of projects previously approved in the budget. The BAA specifies that expenditures or contracts based on the provisional budget are regarded as being based on the regular annual budget when the latter is approved by the National Assembly (Art. 34).

4.2.3. Powers of amendment

The Constitution states that the National Assembly shall, without the consent of the executive, neither increase the estimates of any expenditure item nor create any new expenditure items in the budget submitted by the executive (Art. 57). The National Assembly is only free to reduce estimates of expenditure in the draft budget. However, the National Assembly, in practice, has exercised a substantial power to amend the draft budget. In contrast, the National Assembly has unlimited powers to amend draft taxation bills, which can result in increases or decreases of the budget deficit proposed by the government.

4.2.4. Approval of resources

The Constitution states that the type and rate of taxes is determined by law (Art. 59). Therefore, new taxes are imposed or levels of existing taxes can be amended only when authorised by the National Assembly. Furthermore, the Basic Law on Managing Statutory Expenses (Quasi Taxes) 2002 requires that any new surcharges be levied only by an act. A revenue budget, prepared by the MOFE, is submitted to the National Assembly along with the expenditure budget. It shows projections of total national revenues including taxes, debt or borrowings, and other non-tax revenues. The National Assembly reviews and approves a draft revenue budget. Revenue is required to be classified by the nature of source (e.g. tax, public bond or borrowings, and other non-tax revenues). Within each category, revenue is further divided into chapter (“Jang”) and section (“Kwan”). These are required by the BAA to be on a gross basis.

Public funds have their own surcharges as one of their revenue sources. These revenues are included in the draft fund management plan and approved by the National Assembly.

4.2.5. The nature, structure and duration of appropriations

The nature and structure of appropriations are largely characterised by detailed line items. The BAA requires the draft budget (expenditure and

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revenue) to be classified by item (Art. 20). Expenditure is classified by function (e.g. economic, social welfare, defence), nature of expenditure (e.g. salary, capital investment), or institution (e.g. ministries, agencies). Within that category, expenditures are further divided into: chapter (“Jang”), section (“Kwan”), item (“Hang”), sub-item (“Se-hang”), sub-sub-item (“Se-se-hang”). The current classification shows 2 200 “Hang” and 6 000 “Se-hang”. The National Assembly approves expenditure by item (“Hang”).

The duration for the appropriation is usually for one year except for continuing expenditure which needs multi-year appropriations. There are no permanent appropriations. The continuing expenditure system, authorised by the Constitution (Art. 55) and the BAA (Art. 22), enables the government to make payment over a period of several years. The Constitution requires the executive to obtain the approval, in advance, for the total amount and periods of a continuing expenditure by the National Assembly when it is necessary. The BAA further specifies that a continuing expenditure should not be for more than five years from the fiscal year concerned and the extension of a continuing expenditure can be made only after approval of the National Assembly.

4.2.6. Carryover of appropriations and borrowing of future appropriations

The BAA allows end-year carryover of unspent appropriations under certain circumstances (Art. 38). First, carryover is allowed provided that approval is sought in advance from the National Assembly. Second, carryover is authorised where a contract is made in the fiscal year, but the actual payment is not possible in the same year due to unavoidable reasons. Third, line ministries may carry over up to 5% of certain operational expenditures defined by the MPB without having prior authorisation from the MPB.

4.2.7. Public debt approval

The Constitution provides that when the executive plans to issue public bonds or to make contracts which may incur financial obligations on the government, it needs the prior approval of the National Assembly (Art. 58). The Public Bond Act 1949 as amended governs the operation of the public bonds and the public debt. The act requires the MOFE to obtain prior approval from the National Assembly on the amount of public bonds to be issued. The government has a legal obligation to prepare a comprehensive report on the national debt and present it to the National Assembly. The BAA also requires the government to seek prior approval from the National Assembly when the government decides to guarantee bond issues by public corporations.17 The government is required to submit report to the National Assembly. The law does not restrict the amount of debt guarantees that the government may issue.