Budget Control and the Role of the National Assembly Budget Office in Korea Dr. Jhungsoo Park Director General for Budget Analysis NABO, Korea

contents Introduction Government Spending and Budget Control Executive vs Legislative Power of the Purse Details about the NABO in Korea Conclusion

1. Introduction 1-1 New budget policy in Korea Medium-term expenditure framework Top-down budgeting system Performance management Digital budget and accounting system Structure of Korean government and the budget process Focus on the issue “Can legislature gain an effective voice in budget policy?” Weak role of National Assembly in budget process, traditionally

1. Introduction 1-2 The budget process and the decline of control capacity Today’s process is a layering of various processes developed over time Significant development Budget committee (standing, but special) NABO The decline of independence and control comes from three external development The rise of disciplined political parties The enormous escalation in public spending The rise in interest groups and corporatist political arrangements

1. Introduction 1-3 New roles requires Legislators have to define a new role Promoting fiscal discipline Improving allocation of public money Stimulating administrative entities to manage their operations more efficiently Fulfilling these new roles requires Enhancement of legislative capacity and resources Changes in both executive and legislative budgeting New tools for reconciling long term commitments Redefinition of relationships with the government

1. Introduction 1-4 Characteristics of legislative budgeting The legislature participates with the government in developing budget policy Still vote estimates Setting out a medium-term framework Sectoral allocation policies Statements of policy

1. Introduction 1-5 Three restrained characteristics of legislative budgeting Budgets limit what the legislature may do with public money Budgets intrude on other legislative functions, such as law-making Budgets have the potential to turn legislative work into a technocratic exercise Focus on three subjects Government Spending and Budget control Executive vs legislative power of the purse Role of the National Assembly Budget Office

2. Government Spending and Budget Control 2-1 There are three major causes for the fiscal outcomes General performance of the economy The political commitment to fiscal discipline The institutional arrangements for budgeting Current legislative work on the budget To discipline public finance by constraining the fiscal aggregates To enlarge the legislature’s role in revenue and spending policy

2. Government Spending and Budget Control 2-2 The seven institutional features that the OECD recommends Medium-term budget frameworks Prudent economic assumptions Top-down budgeting techniques Relaxing central input controls Focus on results Budget transparency Modern financial management practices

2. Government Spending and Budget Control 2-3 The theory of bureaucracy by William Niskanen … want more for their agencies and programs Anthony Downs “Why the government budget is too small in a democracy?” … voters are consistently misinformed Gordon Tullock’s theory growth of the bureaucracy is self-generating William Riker’s theory Rulers are trapped in a system of exchange of benefits The larger government grows, the more policies become their own causes

3. Executive vs Legislative Power of the Purse 3-1 Legislative roles and information needs Transformative Legislature Informed Legislature Emerging Legislature Rubber Stamp Legislature Role in Policy Making Need for Information

3. Executive vs Legislative Power of the Purse 3-3 Heart of executive-legislative relations The Budget Process Accounting System Cash/Debt Management Budgeting Managerial Reporting Internal Audit CONTROLS INTERNAL Financial Independent Audit/Evaluation Public Accountability Planning Revenue & Expenditure

3. Executive vs Legislative Power of the Purse 3-4 Legislative powers to amend the budget Rights Number of countries Unlimited powers to amend the budget 32 Reductions of existing items only 17 May reduce expenditure, but increase only with permission of government 4 Increases must be balanced with commensurate cuts elsewhere 13 Rights not specified 15 Total 81

3. Executive vs Legislative Power of the Purse 3-5 In practice, does the legislature generally approve the budget as presented by the government? With no changes With minor changes only With significant Australia X Austria Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan With no changes With minor changes only With significant Korea X Mexico The Netherlands New Zealand Norway Poland Portugal Spain Sweden Switzerland Turkey United Kingdom United States Total 6 17 4 Percent of total 22% 63% 15%

3. Executive vs Legislative Power of the Purse 3-6 Comparison of the growth rate of GDP and government budget in Korea Comparison of the Changes of GDP and Government Budget -20 -10 10 20 30 40 50 60 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Growth rate Year Changes of Government Budget Changes of GDP

3. Executive vs Legislative Power of the Purse 3-7 Legislative influence Explaining the differences Presidential vs parliamentary systems Design of parliamentary powers to amend the budget Party political dynamics Legislative budget research capacity Access to relevant information Legislative committees as the engine room for financial scrutiny Time for scrutiny and the timing of the budget process

3. Executive vs Legislative Power of the Purse 3-8 Strengthening the capacity of the legislatures Responsible and effective legislative action on the budget depends on adequate information concerning the activities financed with public funds and the results ensuing from government programs. The supply of information has enriched by building the capacity of audit offices and independent budget office to assist the legislature. To make effective use of the avalanche of information, modern legislatures have added staff, invested in IT, and professionalized their operations. Examples in the US and in a number of other countries (Philippines, Uganda, Poland, Georgia) establish that a nonpartisan, independent, objective, analytic unit can provide budget information without polarizing the relationships between the executive and the legislature.

4. The National Assembly Budget Office in Korea 4-1 General information NABO was created by the National Assembly Law (Article 22-2) on October 20, 2003 Mission Conduct research and analysis on budget and fund, settlement of accounts, and performance of fiscal operations Estimate costs for bills Analyze and evaluate national programs and medium/long-term fiscal requirements Conduct research and analysis on the requests by committees or members of the National Assembly

4. The National Assembly Budget Office in Korea 4-2 NABO’s organization and staffing NABO has about 92 full-time staffs Chief appointed by the Speaker and approved by the House Steering Committee Chief appoints all NABO staff, in case of higher level approved by the Speaker, based solely on professional competence, not political affiliation 90+% of NABO professional staff hold advanced degrees in economics, public policy, accounting or related fields

4. The National Assembly Budget Office in Korea 4-3 Five objectives which the NABO pursuits Set its status as a specialized organization with authority supporting fiscal control Make sure the national budget is well spent by making analyses of budget and economic policies Analyze budget and economic issues based on public opinions Produce reliable research results through enhancing its expertise Establish a reputation as a world class budget analysts and policy evaluators.

4. The National Assembly Budget Office in Korea 4-4 Job philosophy Impartiality Timeliness Responsiveness Expertise Excellence Reliability Activeness

4. The National Assembly Budget Office in Korea 4-5 Organization of NABO

5. Conclusion 5-1 The success of reforms and innovations in budgeting will ultimately be determined by the cooperation of the legislative body The importance of talking full advantage of the opportunities offered by developments in IT system Rather than as controllers of public finance, legislatures should aim to promote fiscal discipline, improve the allocation of public money and stimulate public bodies to manage their financial operations more efficiently In order to do this, it is necessary to enhance the legislative capacity to deal with budget issues.

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