IV. KOREA

1.Overview

1.1.The legal framework governing budget processes

Korea has a comprehensive set of laws for budget processes. The Constitution, as the cornerstone of the legal framework, specifies fundamental budget rules and the major actors in the budget process. The executive prepares the draft national budget and Parliament (the National Assembly) reviews and approves it. The Board of Audit and Inspection (BAI) plays a pivotal role in securing the accountability of the budget system. The local governments are provided with budgetary autonomy from the central government. The Constitution also governs other fundamental budget rules, such as for provisional and supplementary budgets. Despite its relatively detailed provisions, the Constitution delegates a lot of budgetary powers to various lower laws, especially the Budget and Accounting Act (BAA), the Framework Act on Fund Management (FAFM), the National Assembly Act (NAA), and the Board of Audit and Inspection Act (BAIA) (Box 1).

Box 1. Korea: Main budget system laws

●The Constitution 1948, as amended.

●The National Assembly Act 1948, as amended.

●The Budget and Accounting Act 1961, as amended.

●The Framework Act on Fund Management 1991, as amended.

●The Board of Audit and Inspection Act 1963, as amended.

●The Public Enterprise Budget and Accounting Act 1961, as amended.

●The Basic Act on Managing Statutory Expenses 2002.

●The Treasury Fund Management Act (cash management) 2002; the Government Asset Management Act (public assets) 1950, as amended; and the Public Bond Act (debts) 1949, as amended.

●The Local Autonomy Act 1949, as amended; the Local Finance Act 1963, as amended; The Local Share Tax Act 1961, as amended; and the Local Transfer Fund Act 1990 as amended.

Sources: Ministry of Planning and Budget (MPB) English Internet site www.mpb.go.kr; National Assembly English Internet site www.assembly.go.kr/index.jsp; Board of Audit and Inspection English Internet site www.bai.go.kr.

IV. KOREA

The national budget comprises the general account budget, the special account budgets and public funds (OECD, 2003). The general account budget is commonly referred to as “the budget” representing the central government’s major fiscal activities. The special account budgets, established by various acts (currently 22), have specific objectives or their own revenues earmarked exclusively for those objectives. The public funds (currently 57) are also established by acts when a certain fund is required for a specified purpose. While the BAA specifies the rules for the general account and special accounts, the FAFM applies to the public funds.1 The BAA is a basic and general law that comprehensively governs central government budget processes. It specifies detailed procedural rules between the Ministry of Planning and Budget (MPB), which is the central budget authority, and line ministries within the executive. Its major provisions include: what the national budget consists of; what documents should be presented to the National Assembly; what procedures should be followed for preparation of the national budget; how the national budget should be executed and reported; and what accounting system should be used. The Public Enterprise Budget and Accounting Act (PEBAA), however, allows more flexible budget and accounting procedures for the railways,2 postal services, telecommunications, public procurement and grain management, the nature of whose business is commercial. In contrast, the FAFM provides particular rules for the management of public funds. It specifies the requirements to establish a public fund, the documents for the National Assembly’s approval, and the management of public funds according to the principles of efficiency, transparency, and accountability. It requires a draft fund management plan to be submitted to and approved by the National Assembly annually, in a way analogous to procedures for the national budget.

The National Assembly has its own law (the NAA) governing budget processes in Parliament. It establishes the Special Budget and Settlement Committee (Budget Committee) whose exclusive role is to examine and approve draft annual budgets and draft annual fund management plans. It also specifies the composition of, and procedures of the Budget Committee. The BAIA establishes the BAI and provides procedural rules to secure the accountability of the government and other public sector entities.

The management of cash funds, public assets and debts are governed by the Treasury Fund Management Act (cash management), and the Government Asset Management Act (public assets) and the Public Bond Act (public bonds). Finally, various local finance acts (the Local Autonomy Act, the Local Finance Act, the Local Share Tax Act, and the Local Transfer Fund Act) provide detailed budget procedures and fiscal management.