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 “economy and industry” category, the report looked into eight topics such as: the rural income increase project; the agricultural product price stabilization & distribution innovation project; the environmentally friendly agriculture promotion program; the port development & management project; the radioactive waste management fund; the SME & venture start-up support program; the SME export & market development support program; and the national transport information project. The key takeaways for each topic are highlighted below.
Rural Income Increase Project: The analysis shows, out of “agricultural income,” “transfer income” and “irregular income,” only transfer income-related program contributed to the rural income increase. It is a necessary project to foster long-term independence of rural areas, but it lacks specific ways to generate more tangible results. Considering the transfer income program serves as a tool for redistribution of income, it is important to improve the program so that it can address not just the income gap between urban and rural areas or among different rural households but also the problems that may arise from the aging society. For the irregular income program, a timely extension of sufficient financial support is important as it serves as an income safety net against contingent events like disasters.
Agricultural Product Price Stabilization and Distribution Innovation Project: Considering the lackluster execution of the budget for the agricultural project reserve and an online farmer’s market for micro entrepreneurs named “POS-Mall” as well as the failure to meet the performance targets for contract-based farming of open-field vegetables and automation of loading at wholesale markets, it should focus more on robust planning and performance management. The budget for POS-Mall, which was even supplemented in 2013, failed to be executed and eventually carried over while contract-based farming failed to meet even the downward-revised targets.
Environmentally Friendly Agriculture Promotion Program: It is necessary to address improper certification resulting from excessive competition among private certification institutions; increase the land area for environmentally friendly agricultural products; and improve performance targets. Efforts should be made to secure an appropriate number of qualified reviewers for certification and improve the certification methodologies so that the public can have confidence in the system. Despite the slow execution of budget, the environmentally friendly farming infrastructure project achieved around 100% of its performance targets, which means more reasonable performance targets should be set, considering the budget and historical performance.
Ports Development & Management Project: it should find out ways to beef up port facilities by considering various factors like optimal loading capacity, service levels, increase in the average vessel size, operational capacity of the terminal operator, incremental lease in the event of a higher loading capacity and demurrage by terminal. Based on the newly calculated optimal loading capacity and the port trading volume monitoring results, the Third General Plan for Ports Development across the Nation for the next five years (2016-2020) should be revised to adjust the functional aspects of the ports, strengthen their role as the logistical hub and tighten safety measures to prevent accidents. For the port projects which failed to satisfy the conditions for private investment under the previous version of the Third General Plan (2011-2020), it is recommended to think about converting them to government projects.
Radioactive Waste Management Fund: it is necessary to enhance the return on investment of the Radioactive Waste Management Fund; reserve cash to fund the dismantling of nuclear plants; and prepare for the potential exhaustion of the radioactive waste disposal site in Gyeongju. Although Korea Hydro & Nuclear Power Co, Ltd., the nuclear power plant operator, has posted contingent liability on its book to cover the nuclear plant dismantling cost (KRW 9,887 billion), it also needs to maintain a cash reserve to protect itself from future uncertainties. Given the estimated volume of low- and medium-contaminated radioactive waste to be generated over the long term, the Gyeongju site is not big enough to accommodate all future waste from the nuclear plants. As such, it is recommended to develop measures for the efficient disposal of radioactive waste depending on the contamination level and consider construction of a disposal site for the extremely low-contaminated radioactive waste.
SME & Venture Startup Support Program: A budget cut is recommended as the Business Incubator (“BI”) demonstrated poor performance. It is also recommended to restructure the BI; differentiate the project from other similar activities or strengthen the link with them; and build the “start-up platform” to provide support throughout all stages of the start-up cycle. The BI project, which demonstrated disappointing performance by focusing on providing physical space only, has to be downsized by 30% from 2015 to 2017 as planned by the government. As a new project, the “start-up platform” initiative is under way right now. But as it is not linked to other existing start-up programs, it is necessary to put them together in a package deal.
SME Export & Market Development Support Program: It is necessary to reconsider the planned expansion of the SME-only mall given its disappointing performance and enhance program efficiency by addressing the possibility of an SME taking the same benefit from another channel. Particularly, a close monitoring is required to detect SMEs that are already benefiting from the support provided by the Overseas Trade Promotion Team. As for the Global Incubator program, itis important to set it apart from a similar program offered by KOTRA by strengthening its plan through localization and providing more software-like support.
National Transport Information Project: It is necessary to reduce operating and maintenance expense for both hardware and software by consolidating the operation of the national transport information system currently handled by various departments. For example, the Ministry of Land, Infrastructure and Transport can save budget by consolidating the hardware and system management under its Information Management & Statics Division while delegating data collection and management to other government bodies.
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 “economy and industry” category, the report looked into eight topics such as: the rural income increase project; the agricultural product price stabilization & distribution innovation project; the environmentally friendly agriculture promotion program; the port development & management project; the radioactive waste management fund; the SME & venture start-up support program; the SME export & market development support program; and the national transport information project. The key takeaways for each topic are highlighted below.
Rural Income Increase Project: The analysis shows, out of “agricultural income,” “transfer income” and “irregular income,” only transfer income-related program contributed to the rural income increase. It is a necessary project to foster long-term independence of rural areas, but it lacks specific ways to generate more tangible results. Considering the transfer income program serves as a tool for redistribution of income, it is important to improve the program so that it can address not just the income gap between urban and rural areas or among different rural households but also the problems that may arise from the aging society. For the irregular income program, a timely extension of sufficient financial support is important as it serves as an income safety net against contingent events like disasters.
Agricultural Product Price Stabilization and Distribution Innovation Project: Considering the lackluster execution of the budget for the agricultural project reserve and an online farmer’s market for micro entrepreneurs named “POS-Mall” as well as the failure to meet the performance targets for contract-based farming of open-field vegetables and automation of loading at wholesale markets, it should focus more on robust planning and performance management. The budget for POS-Mall, which was even supplemented in 2013, failed to be executed and eventually carried over while contract-based farming failed to meet even the downward-revised targets.
Environmentally Friendly Agriculture Promotion Program: It is necessary to address improper certification resulting from excessive competition among private certification institutions; increase the land area for environmentally friendly agricultural products; and improve performance targets. Efforts should be made to secure an appropriate number of qualified reviewers for certification and improve the certification methodologies so that the public can have confidence in the system. Despite the slow execution of budget, the environmentally friendly farming infrastructure project achieved around 100% of its performance targets, which means more reasonable performance targets should be set, considering the budget and historical performance.
Ports Development & Management Project: it should find out ways to beef up port facilities by considering various factors like optimal loading capacity, service levels, increase in the average vessel size, operational capacity of the terminal operator, incremental lease in the event of a higher loading capacity and demurrage by terminal. Based on the newly calculated optimal loading capacity and the port trading volume monitoring results, the Third General Plan for Ports Development across the Nation for the next five years (2016-2020) should be revised to adjust the functional aspects of the ports, strengthen their role as the logistical hub and tighten safety measures to prevent accidents. For the port projects which failed to satisfy the conditions for private investment under the previous version of the Third General Plan (2011-2020), it is recommended to think about converting them to government projects.
Radioactive Waste Management Fund: it is necessary to enhance the return on investment of the Radioactive Waste Management Fund; reserve cash to fund the dismantling of nuclear plants; and prepare for the potential exhaustion of the radioactive waste disposal site in Gyeongju. Although Korea Hydro & Nuclear Power Co, Ltd., the nuclear power plant operator, has posted contingent liability on its book to cover the nuclear plant dismantling cost (KRW 9,887 billion), it also needs to maintain a cash reserve to protect itself from future uncertainties. Given the estimated volume of low- and medium-contaminated radioactive waste to be generated over the long term, the Gyeongju site is not big enough to accommodate all future waste from the nuclear plants. As such, it is recommended to develop measures for the efficient disposal of radioactive waste depending on the contamination level and consider construction of a disposal site for the extremely low-contaminated radioactive waste.
SME & Venture Startup Support Program: A budget cut is recommended as the Business Incubator (“BI”) demonstrated poor performance. It is also recommended to restructure the BI; differentiate the project from other similar activities or strengthen the link with them; and build the “start-up platform” to provide support throughout all stages of the start-up cycle. The BI project, which demonstrated disappointing performance by focusing on providing physical space only, has to be downsized by 30% from 2015 to 2017 as planned by the government. As a new project, the “start-up platform” initiative is under way right now. But as it is not linked to other existing start-up programs, it is necessary to put them together in a package deal.
SME Export & Market Development Support Program: It is necessary to reconsider the planned expansion of the SME-only mall given its disappointing performance and enhance program efficiency by addressing the possibility of an SME taking the same benefit from another channel. Particularly, a close monitoring is required to detect SMEs that are already benefiting from the support provided by the Overseas Trade Promotion Team. As for the Global Incubator program, itis important to set it apart from a similar program offered by KOTRA by strengthening its plan through localization and providing more software-like support.
National Transport Information Project: It is necessary to reduce operating and maintenance expense for both hardware and software by consolidating the operation of the national transport information system currently handled by various departments. For example, the Ministry of Land, Infrastructure and Transport can save budget by consolidating the hardware and system management under its Information Management & Statics Division while delegating data collection and management to other government bodies.