[Interview] Jo Uiseop, Director of Budget Policy Office, "The Automatic Budget Submission System Needs Revision"

"Automatic Majority, a System Possible Only with Female Majority and Male Minority"
Efforts to Address Low Birthrate and Other Solutions Underway
Considering Strengthening Parliamentary Budget Review within Constitutional Framework

"The automatic submission system for budget bills now needs revision."

Jo Eui-seop, Director of the National Assembly Budget Office, said this during an interview with Asia Economy on the 2nd, evaluating the budget review process over recent years. Director Jo stated, "Our Constitution stipulates that the budget bill must be approved at least 30 days before the fiscal year (Article 54, Clause 2 of the Constitution), but since this has not been observed, the automatic submission system for budget bills was introduced through the National Assembly Advancement Act to automatically submit the budget bill on December 2 every year." He added, "This system worked when the ruling party had even just one more seat than the opposition, but it has been confirmed that it does not function in a system where the ruling party is in the minority."

In 2012, the National Assembly introduced the 'automatic submission' system to eliminate the problem of budget bills being processed late in the year or after the year-end. If budget review is not completed by November, the original budget bill is automatically submitted to the plenary session. Tax laws affecting the budget are also automatically submitted under the name of supplementary laws to the revenue budget bill. The intention was to ensure that the legal deadline is met even if the ruling and opposition parties engage in political disputes over the budget. However, as confirmed in the 21st National Assembly, the budget bill was not processed within the legal deadline in a minority ruling party system, and the budget and tax laws were criticized as secretive collusion, barely processed through last-minute tug-of-war between party leaders. As a result, even the members of the National Assembly, who are the main reviewers of the budget, had to admit with self-deprecation that they did not know the proper contents before the final vote and only acted as rubber stamps.

Jo Eui-seop, Director of the National Assembly Budget Office

Regarding this, Director Jo said, "The only benefit of this automatic submission system was to process the budget bill within the legal deadline in accordance with the Constitution, but even that has not been achieved, causing many sacrifices." He criticized, "When the budget is automatically submitted, the Ministry of Strategy and Finance Committee (which reviews tax laws) and the Budget and Accounts Committee (which reviews the budget) end up doing nothing, and the ruling and opposition parties politically compromise and send it to the plenary session." This means that all personnel and organizations responsible for reviewing the revenue and expenditure of the budget lose their authority, and the budget is politically processed. Director Jo said, "Since the final stage of the budget bill becomes only a political process, no one reviews parts like revenue budgets, causing problems that are not transparently filtered." The automatic submission system, which started with good intentions to comply with the Constitution, ironically hindered the National Assembly's budget review process that should have functioned during the budget review phase. He added, "Now, even if the Budget and Accounts Committee subcommittee holds hearings during the budget review process, it ends up being pushed into a black box where no one knows anything," and "From the government's perspective, as long as December 1 passes every year, the budget is manipulated according to the government's will."

Additionally, Director Jo introduced improvement plans for the cost estimation system that evaluates the costs associated with bills proposed by lawmakers, and projects conducted by the Budget Office related to low birthrate countermeasures.

Below is a Q&A with Director Jo.

- The Budget Office forecasted this year's economic growth rate at 2.0%, lower than the government's forecast of 2.2%. It has been about a month; what is your view?

▲ It is true that the economy hit bottom last year and entered a recovery phase. The recovery was slower than the government's forecast because the pace of improvement in our external economy was different. External conditions are improving better than expected, such as growth rates rising in China and the United States. However, risk factors remain. The war in Ukraine and the Middle East are risk factors. The U.S. presidential election is also a source of uncertainty. Although conditions will improve compared to last year, the speed is uncertain. The Budget Office plans to announce a revised forecast reflecting changes in conditions around the end of March.

- The government's tax revenue forecasts have repeatedly been wrong. Last year, there was a large-scale tax revenue shortfall. What is the problem?

▲ The errors in tax revenue forecasts are not unique to us. Many countries experienced tax revenue forecast errors as their economies rebounded during the pandemic. However, what is regrettable for us is the lack of a re-estimation process. Our budget formulation starts in March, but the actual budget is finalized at the end of the year. There is a time lag in between, and institutionalizing re-estimation would significantly reduce the gap. Also, technically, our tax revenue is forecasted using time series models based on growth rates. Last year's large tax revenue errors were mainly related to corporate tax and capital gains tax, which could be improved by using micro-level information. For example, industries like semiconductors and automobiles have large economic forecast errors, but if micro-level information on these sectors is reflected, errors could be reduced. Additionally, strengthening cooperation among economic forecasting institutions is another method. The Budget Office has been informally consulting with the Ministry of Strategy and Finance, but there is no official channel yet. Establishing an official channel would be helpful.

- Welfare demand is increasing, but securing resources is becoming difficult. What measures do you think are necessary?

▲ Securing resources can only be done by increasing national tax revenue or government debt. Increasing national tax revenue ultimately depends on raising the growth rate, so economic recovery is the key. In the serious situation of a declining population, investments that can enhance growth potential must be made. The government should take the lead in this. Continuous and bold investments are necessary to improve total factor productivity (TFP). Such efforts are required for long-term economic growth. We are no longer in a position to just follow other countries' growth; we need to create pioneering initiatives. To do this, the government needs to discuss and promote investment plans with the private sector regarding areas where investment is desired or difficult.

- Speaker Kim Jin-pyo emphasized legislative and policy alternatives to solve the low birthrate problem. What roles is the Budget Office performing?

▲ To solve the low birthrate problem, solutions are needed for childcare, education, housing, and related issues. Since these problems cannot be solved within 1-2 years even with countermeasures, issues such as attracting foreign workers and national defense must also be considered. In this regard, the Budget Office is researching public education innovation tasks and improvements to the overseas immigration system. Last year, with the passage of the Local Education Finance Act, digital textbooks using artificial intelligence (AI) were introduced, but institutional improvements are needed regarding personal information protection. Also, regarding attracting foreign workers, under the current Nationality Act, overseas Koreans can regain nationality only after age 60. Due to military service issues, this age cannot be lowered, but improvements are being prepared to allow those up to age 40, who can play a leading role in production, to regain nationality or to reform governance for labor market restructuring.

- The Budget Office, known as the guardian of fiscal discipline, also reviews cost estimates for bills. Please share your views on its role and ways to improve its limitations.

▲ Last year, the Budget Office produced 5,000 reports with a cost estimation team of 30 people. Large national projects face limitations during the cost estimation process. To estimate costs, it is essential to know the project's budget, unit price, and quantity. However, if any of these are missing, calculation is difficult. Legislation is often enacted without specific routes or distances. If the construction period is not clearly defined, cost estimation is difficult. Also, if bills are amended during committee discussions, cost estimation is often skipped. It would be better to confirm cost estimates once before approval, but unfortunately, this is not always done.

Jo Eui-seop, Director of the National Assembly Budget Office

- What overall changes do you think are needed in the budget review process?

▲ When the government formulates the budget, important policy decisions are already made before it reaches the National Assembly. The budget is essentially set, so the National Assembly's ability to amend it is limited. Speaker Kim Jin-pyo proposed reform plans allowing comprehensive review of resource allocation, but the government opposes, citing infringement on its budget formulation rights. Under the current Constitution, we are preparing adjustment plans to strengthen the National Assembly's budget review authority. One idea under consideration is that budget requests are made not only by the Ministry of Strategy and Finance but also by each ministry. If budget requests are submitted to standing committees as well, the committees could provide supplementary opinions to the government. Also, the budget structure should reflect last year's settlement, but this has not been done so far. If settlement reviews of the previous year's budget are completed by July, issues can be reflected at the working level before the budget is submitted to the National Assembly in July or August. We are preparing adjustment plans including these points.

- The Budget Office also produces forecasts for the National Pension and others. What are your views on reform discussions?

▲ Pension issues are closely related to demographic problems. As the working-age population decreases and the elderly population increases, the burden ratio continues to rise. Everyone now recognizes that this is unsustainable. The question is when depletion will occur. How to address this remains. Since our retirement income is poor, benefits cannot be cut unconditionally. Looking at overseas cases, retirement age is extended as aging progresses. Currently, our National Pension starts at age 65, but retirement age is 60, leaving a 5-year gap. This issue needs to be addressed. The basic pension currently covers nearly 70%, but it does not restore the quality of life for the elderly. Therefore, benefits should be boldly provided to those in need while reducing the number of recipients. The rest should be covered by the National Pension, and those in better circumstances should have a multi-layered system including retirement pensions.