IV. KOREA

Notes

1.For more discussion see, for example, Koh (2000) and MPB (2001).

2.The PEBAA will not apply to the railways as from 2005, due to their planned privatisation.

3.Reforms implemented during past decades include the preliminary feasibility study for new large-scale infrastructure projects, tighter management of total investment estimates for large-scale projects, introduction of a medium-term fiscal plan (not legally binding), pilot projects for performance-oriented budgeting, and a budget incentive system to induce lower public expenditures. These led to minor changes in the BAA. See MPB (2002) for more information.

4.This low public debt is explained largely by the culture of fiscal conservation that prevails both within the administration and the public. In addition the concentration of powers for both the drafting and execution of the budget in the hands of a single powerful ministry, the MPB (the former Economic Planning Board), has helped impose a hard budget constraint on line ministries. Moreover, budgets are prepared on the basis of deliberately conservative revenue forecasting, leading to a tendency for overshooting projected revenues. On the appropriations side, spending overruns are rare.

5.For more discussion on the budget’s role in overcoming the 1997 financial crisis, see Mun et al., 2002.

6.Quasi taxes are generally defined as “all pecuniary expenses that a corporation is obliged to pay other than taxes” (MPB, 2002). This definition takes the broadest possible interpretation of quasi taxes, and includes legally mandated statutory expenses (e.g. social insurance contributions) and other non-voluntary expenses.

7.Major provisions of a fiscal responsibility bill are: 1) The bill would require the government to submit to the National Assembly a three-year fiscal plan, including targets for a consolidated budget balance and public debt; 2) It would restrict supplementary budgets to emergency situations, and establish public debt reduction as the priority in the allocation of any budget surpluses; 3) It would require that any proposals generating higher public spending or lower revenue include a plan on how to offset the negative financial impact; (4) It would create a National Debt Management Committee that reports to the MPB.

8.In September 2004, the “National Fiscal Management Plan (2004-2008)” was approved by the State Council. This plan shows the economic assumptions, the budget aggregates by major sector or ministry, major public expenditure priorities, and national debt for the next five years. The MPB, on behalf of the government, also submitted the draft budget with this plan to the National Assembly. Spending ministries are required to prepare their draft budgets within budget aggregates given by this plan. For more information on the medium-term fiscal framework and top-down budget system, see Kim (2004) and Hur (2004).

9.In some of the other countries reviewed in this book, the State Council is known as “the Cabinet” or “the Council of Ministers”.

10.Included are the Government Information Agency, the Public Procurement Service, the Korea National Statistical Office, the Central Supply Office, and the National Medical Center. See MPB (2002).

11.For more information on local government finance, see OECD (2001); Kim (2003a); Yoo (2003).

IV. KOREA

12.FAFM functions as the parent law. Only public funds, which are listed in the FAFM, can be established by individual establishing acts. The FAFM also regulates the operation of public funds’ assets in order to secure the stability and efficiency of the fund.

13.Examples include the Agricultural Management Fund, the Employment Insurance Fund, the National Pension Fund, the Employment Promotion Fund for the Disabled, the Tourism Promotion Fund, the Information Promotion Fund, the Industrial Workers’ Accident Compensation Insurance Fund, the Fund for National Heath Promotion, the Livestock Development Fund, and the Broadcasting Development Fund.

14.There were 11 extrabudgetary public funds that were not subject to parliamentary approval under the FAFM, even though they have a substantial impact on the status of public finances. They include the Credit Guarantee Fund, the Housing Finance Credit Guarantee Fund, and the Non-performing Asset Management Fund. However, the amended FAFM in 2003 requires all these funds to be subject to parliamentary oversight.

15.From the early 1980s, the budget authority adopted a new means of budget review, a de facto “Council for Budget Deliberation”. This Council, which consists of the Assistant Minister for the Budget, three director generals and some major directors, deliberates on budget drafts prepared by each budget division of the MPB. Although having no written statute for its foundation, this council has significantly contributed to improving budget formulation, in line with national priorities.

16.Several government reorganisations have occurred over the last decade, especially concerning the institutions responsible for macroeconomic forecasting, budgeting, and co-ordination. In 1994, the Economic Planning Board, which was responsible for economic forecasting and budgeting, was merged with the Ministry of Finance to form the Ministry of Finance and Economy (MOFE). This was soon broken up leading to the establishment of the Planning and Budget Commission (PBC) and the Office of National Budget (ONB) as separate bodies from the MOFE. Shortly thereafter, the PBC and ONB themselves were merged to create the MPB, leaving the MOFE (economic forecasting function) and the MPB (budget function) as two independent ministries.

17.After 1997, the government issued guaranteed bonds equivalent to 27% of GDP for financial sector restructuring. There is no legal obligation to show the current value of the full cost of this debt, nor the risks involved. Presently, only the interest on the bonds is incorporated into the national budget. There is a risk that any defaults on the bonds would have a high budgetary cost (OECD, 2003).

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Kim, Junghun (2003a), “Local Government Financing and Bond Market Financing in Korea”, paper presented at the Korea Development Institute Seminar on Local Government Financing, Korea Institute of Public Finance, Seoul (in Korean), 24 January.

IV. KOREA

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ISSN 1608-7143

OECD Journal on Budgeting – Volume 4 – No. 3 © OECD 2004

New Zealand*

*This study has benefited from comments from: Roger Beckett and Ken Warren of the New Zealand Treasury; Wendy Ventner of the Office of the Auditor General; and OECD colleagues including David Rae of the Economics Department.