In accordance with Articles 8 and 34 of the National Financial Act of Korea, the Korean government appended a performance plan when it submitted the budget bill to the National Assembly of Korea. For an efficient and effective evaluation of the bill from a performance perspective, the National Assembly Budget Office (“NABO”) reviewed the FY 2015 performance plan and carried out a deep-dive analysis to assess the budget bill in relation to the performance plan.
The topics for our evaluation have been selected based on the main themes of the 2015 budget bill. Despite difficulties in collecting tax revenues, the government explains that it has developed an expansionary budget plan in order to revitalize the economy. Another point to be noted is that the budget for health, welfare and employment has exceeded 30% of the gross expenditure for the first time in history. This is why this report focused on “economic revitalization” and “national happiness” when choosing its evaluation topics.
The report also tried to conduct a comprehensive analysis by looking into not just the budget plan itself but also other structural factors like related systems, performance management, and tax expenditure and assess whether the intended purpose of a budgeted program has been met. By compiling and categorizing our findings in the appendix, which would include suggestions for budgetary adjustments, creation & amendment of laws, system reforms and performance management, the report intends to support an effective review of the 2015 budget bill by the National Assembly.
The report evaluated 27 topics under three categories: 1) comprehensive and inter-ministerial; 2) economy and industry; and 3) society and administration.
Under the “comprehensive and inter-ministerial” category, the report looked into eight topics such as: the fiscal performance target management system; local governments’ projects subsidized by the central government; the job support program; the part-time job initiative; the creative economy R&D project; the charges; the public dispute management project; and the budgetary support for public institutions that have surplus funds. The key takeaways for each topic are highlighted below.
Fiscal Performance Target Management System: It is recommended to expand the scope of performance management; tighten feedback on performance management; disclose more performance information; and tighten control over tax expenditure from a performance perspective. It is also important to include all projects where the government funds are used in the performance plan and utilize the performance information not just for the restructuring of tax expenditure but also for other purposes like a way to improve the project management process.
Local Governments’ Projects Subsidized by the Central Government: It is recommended to think about ways to ensure an efficient management of government-subsidized projects; improve the methodology to calculate the basic subsidy rate and the differential subsidy rate; and develop measures to improve the policy making process that involves financial burden on the local governments. In particular, it is necessary to define and stipulate a principle for the basic subsidy rate calculation in the Subsidy Management Act while disclosing the basic rates for more projects in the appendix to the Enforcement Decree of the Subsidy Management Act. Regarding the use of the differential subsidy rate, the report identified some problems: the level of financial independence of local government are concentrated around the threshold and the same criteria are used for both higher-level and lower-level local governments.
Job Support Program: It is necessary to reduce the portion of direct job creation; review how to allocate financial resources to different types of job creation activities; and consolidate the management of related services. Korea is too dependent on direct job creation, which is used as a temporary income generator for the people aged 60 or above. Therefore, it is recommended to reduce financial support for direct job creation and instead expand activities for long-term employment. Another area for improvement is the vocational training activity: in some of the occupations, vocational training does not lead to actual employment quite often. In the meantime, for an easier access to the job support program, it is recommended to consolidate the channel for job-related services that are currently available across various ministries and departments.
Part-Time Job Initiative: It is necessary to create quality part-time jobs, expand the institutional infrastructure and fine-tune the activities by taking into account potential overlapping of financial support by the central and local governments. It is also necessary to develop measures to improve the quality of part-time jobs as the current part-time workers are rarely subscribed to social insurance and suffer from low wages. Creation of part-time jobs in public institutions may undermine the employment of those without a college degree, a potential side effect that needs to be addressed. The budget for the “flexible part-time job program” run by the Ministry of Employment & Labor should be cut back to the same level as the previous year given the poor performance repeated over the last few years.
Creative Economy R&D Project: It is recommended to expand support for entrepreneurs, SMEs and medium-sized companies as well as the start-ups in the initial phase of the business; reinforce the screening process for R&D projects; consolidate the channel to carry out policies on technological transfer and commercialization; and clean up duplicate or similar projects. It is necessary to extend more R&D support for high-performing start-ups aged less than five years and ensure transparency in composing the screening committee for R&D projects through a system-wide reform to prevent illegal or illegitimate use of research funds.
Charges: It is recommended to review whether the charges are being used for their intended purposes in light of the Framework Act on the Management of Charges and applicable laws governing individual charges. For example, the National Health Promotion Fund is expected to channel KRW 1.5 trillion to the health insurance budget. But considering the Fund relies upon tobacco charges for 71.3% of its funding needs, it means that the tobacco charges are being used for purposes other than the national health promotion. Meanwhile, it is also important to improve the management practice of charges that are in nature membership dues like “contributions to Korea Fire Protection Association.” This type of charges would be better managed through autonomy than through regulations.
Public Dispute Management Project: It is necessary to closely monitor and manage pending issues surrounding public disputes and revamp the system to reach social consensus. Rather than sticking with the academic approach such as institutional research and study, it is recommended to take a more pragmatic approach for actual conflict resolution. For example, it needs to focus on the pending conflict and revise the program activities accordingly while considering how to utilize the alternative dispute resolution scheme and introduce a public institution which can deliver conflict resolution through fair and independent public debates and deliberation.
Budgetary Support for Public Institutions that Have Surplus Funds: For public institutions with excess funds, it is necessary to require more dividend or consider a cut in the budgeted financial support. The combined value of net financial assets held by 31 public institutions with more than KRW 10 billion worth of net financial assets respectively as of 2013 year-end stood at KRW 8.8 trillion. In particular, those with excessive idle funds such as Korea International Cooperation Agency, Korea Agro-Fisheries & Food Trade Corp., Korea Housing Guarantee Co. Ltd., Korea Airport Corporation, Grand Korea Leisure and Korea Exchange should use their own retained earnings either to reduce the budgeted support from the government or to increase dividend.
The topics for our evaluation have been selected based on the main themes of the 2015 budget bill. Despite difficulties in collecting tax revenues, the government explains that it has developed an expansionary budget plan in order to revitalize the economy. Another point to be noted is that the budget for health, welfare and employment has exceeded 30% of the gross expenditure for the first time in history. This is why this report focused on “economic revitalization” and “national happiness” when choosing its evaluation topics.
The report also tried to conduct a comprehensive analysis by looking into not just the budget plan itself but also other structural factors like related systems, performance management, and tax expenditure and assess whether the intended purpose of a budgeted program has been met. By compiling and categorizing our findings in the appendix, which would include suggestions for budgetary adjustments, creation & amendment of laws, system reforms and performance management, the report intends to support an effective review of the 2015 budget bill by the National Assembly.
The report evaluated 27 topics under three categories: 1) comprehensive and inter-ministerial; 2) economy and industry; and 3) society and administration.
Under the “comprehensive and inter-ministerial” category, the report looked into eight topics such as: the fiscal performance target management system; local governments’ projects subsidized by the central government; the job support program; the part-time job initiative; the creative economy R&D project; the charges; the public dispute management project; and the budgetary support for public institutions that have surplus funds. The key takeaways for each topic are highlighted below.
Fiscal Performance Target Management System: It is recommended to expand the scope of performance management; tighten feedback on performance management; disclose more performance information; and tighten control over tax expenditure from a performance perspective. It is also important to include all projects where the government funds are used in the performance plan and utilize the performance information not just for the restructuring of tax expenditure but also for other purposes like a way to improve the project management process.
Local Governments’ Projects Subsidized by the Central Government: It is recommended to think about ways to ensure an efficient management of government-subsidized projects; improve the methodology to calculate the basic subsidy rate and the differential subsidy rate; and develop measures to improve the policy making process that involves financial burden on the local governments. In particular, it is necessary to define and stipulate a principle for the basic subsidy rate calculation in the Subsidy Management Act while disclosing the basic rates for more projects in the appendix to the Enforcement Decree of the Subsidy Management Act. Regarding the use of the differential subsidy rate, the report identified some problems: the level of financial independence of local government are concentrated around the threshold and the same criteria are used for both higher-level and lower-level local governments.
Job Support Program: It is necessary to reduce the portion of direct job creation; review how to allocate financial resources to different types of job creation activities; and consolidate the management of related services. Korea is too dependent on direct job creation, which is used as a temporary income generator for the people aged 60 or above. Therefore, it is recommended to reduce financial support for direct job creation and instead expand activities for long-term employment. Another area for improvement is the vocational training activity: in some of the occupations, vocational training does not lead to actual employment quite often. In the meantime, for an easier access to the job support program, it is recommended to consolidate the channel for job-related services that are currently available across various ministries and departments.
Part-Time Job Initiative: It is necessary to create quality part-time jobs, expand the institutional infrastructure and fine-tune the activities by taking into account potential overlapping of financial support by the central and local governments. It is also necessary to develop measures to improve the quality of part-time jobs as the current part-time workers are rarely subscribed to social insurance and suffer from low wages. Creation of part-time jobs in public institutions may undermine the employment of those without a college degree, a potential side effect that needs to be addressed. The budget for the “flexible part-time job program” run by the Ministry of Employment & Labor should be cut back to the same level as the previous year given the poor performance repeated over the last few years.
Creative Economy R&D Project: It is recommended to expand support for entrepreneurs, SMEs and medium-sized companies as well as the start-ups in the initial phase of the business; reinforce the screening process for R&D projects; consolidate the channel to carry out policies on technological transfer and commercialization; and clean up duplicate or similar projects. It is necessary to extend more R&D support for high-performing start-ups aged less than five years and ensure transparency in composing the screening committee for R&D projects through a system-wide reform to prevent illegal or illegitimate use of research funds.
Charges: It is recommended to review whether the charges are being used for their intended purposes in light of the Framework Act on the Management of Charges and applicable laws governing individual charges. For example, the National Health Promotion Fund is expected to channel KRW 1.5 trillion to the health insurance budget. But considering the Fund relies upon tobacco charges for 71.3% of its funding needs, it means that the tobacco charges are being used for purposes other than the national health promotion. Meanwhile, it is also important to improve the management practice of charges that are in nature membership dues like “contributions to Korea Fire Protection Association.” This type of charges would be better managed through autonomy than through regulations.
Public Dispute Management Project: It is necessary to closely monitor and manage pending issues surrounding public disputes and revamp the system to reach social consensus. Rather than sticking with the academic approach such as institutional research and study, it is recommended to take a more pragmatic approach for actual conflict resolution. For example, it needs to focus on the pending conflict and revise the program activities accordingly while considering how to utilize the alternative dispute resolution scheme and introduce a public institution which can deliver conflict resolution through fair and independent public debates and deliberation.
Budgetary Support for Public Institutions that Have Surplus Funds: For public institutions with excess funds, it is necessary to require more dividend or consider a cut in the budgeted financial support. The combined value of net financial assets held by 31 public institutions with more than KRW 10 billion worth of net financial assets respectively as of 2013 year-end stood at KRW 8.8 trillion. In particular, those with excessive idle funds such as Korea International Cooperation Agency, Korea Agro-Fisheries & Food Trade Corp., Korea Housing Guarantee Co. Ltd., Korea Airport Corporation, Grand Korea Leisure and Korea Exchange should use their own retained earnings either to reduce the budgeted support from the government or to increase dividend.