Budget Control and the Role of the Budget Control and the Role of the NationalNational

Assembly Budget Office in KoreaAssembly Budget Office in Korea

Dr. Jhungsoo Park

Director General for BudgetAnalysis

NABO, Korea

contents

1. Introduction

2. Government Spending and Budget Control

3. Executive vs Legislative Power of the Purse

4. Details about the NABO in Korea

5. Conclusion

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

1-11-1

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

1-21-2

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

1-31-3

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

1-41-4

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

1-51-5

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

2-12-1

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

2-22-2

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

2-32-3

Legislative roles and information needs R

ole

in

Policy M

akin

g

N

eed

for

Info

rmati

onTransformative Legislature

Informed Legislature

Emerging Legislature

Rubber Stamp Legislature

3-13-1

Heart of executive-legislative relations

The Budget Process

AccountingSystem

Cash/DebtManagement

System

BudgetingSystem

ManagerialReporting

InternalAudit

CONTROLS

INTERNAL

FinancialReporting

IndependentAudit/Evaluation

Public Accountability

Planning

BudgetingRevenue &Expenditure

3-33-3

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

3-43-4

In practice, does the legislature generally approve the budget as presented by the government?

With no changes

With minor changes only

With significant changes

Australia X

Austria X

Canada X

Czech Republic X

Denmark X

Finland X

France X

Germany X

Greece X

Hungary X

Iceland X

Ireland X

Italy X

Japan X

With no changes

With minor changes only

With significant changes

Korea X

Mexico X

The Netherlands

X

New Zealand X

Norway X

Poland X

Portugal X

Spain X

Sweden X

Switzerland X

Turkey X

United Kingdom

X

United States X

Total 6 17 4

Percent of total

22% 63% 15%

3-53-5

Comparison of the growth rate of GDP and government budget in Korea

Comparison of the Changes of GDP andGovernment Budget

-20

-10

0

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

3-63-6

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

3-73-7

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.

3-83-8

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

4-14-1

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

4-24-2

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.

4-34-3

Job philosophy

Impartiality

Timeliness

Responsiveness

Expertise

Excellence

Reliability

Activeness

4-44-4

Organization of NABO4-54-5

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.

5-15-1

Thank you for your attention