[Exclusive] Ministry of Economy and Finance Budget Office Flooded with 'Note Budgets'

Official budget request adhered to limits
but additional increase demanded through unofficial documents
used as a custom despite no legal basis

So-called 'note budgets' are rampant in the government's budget formulation process. Official budget requests are prepared within limits, while additional budget increase projects are submitted through unofficial documents. Since there is no legal basis and no trace left, concerns have been raised that budget formulation is conducted through unofficial channels.

On the 30th, Asia Economy obtained and examined 23 budget requests received by the Ministry of Economy and Finance (MOEF) from various ministries between 2015 and 2024, confirming the existence of unofficial budget requests called 'outside the limit' or 'problem projects.' Many ministries prepared budget requests within spending limits through official channels but submitted additional increase projects in separate documents that left no records.

A budget request is a kind of 'preliminary draft' budget that each government ministry prepares and sends to the MOEF by the end of May. Each ministry requests increases according to the spending limits set by the MOEF, which then uses these to create the government budget. However, since budget requests are confidential, there was no way to know how much the spending limits were or how well they were observed. The MOEF and other ministries mostly maintained that 'spending limits were complied with.'

However, when considering unofficial budget requests, many ministries exceeded the spending limits by a large margin. The Rural Development Administration (Nongchon Jinhungcheong) is a representative example. Last year, the Rural Development Administration requested a budget of 1.2841 trillion won for this year through its budget request. This was 29.4 billion won more than the previous year's budget, strictly adhering to the MOEF's spending limit of 1.2841 trillion won. However, the Rural Development Administration unofficially prepared an additional 102.1 billion won outside the limit. This is about 2.5 times the amount requested in the official document. While the budget request alone made it appear that the increase was restrained to 2.3%, in reality, they requested an increase of 10.5%.

Major projects were sometimes included in the outside-the-limit budget. The Korea Meteorological Administration (Gisangcheong) wrote 452.5 billion won in its 2022 budget request. The official document stated that 17.5 billion won was cut through expenditure restructuring of 14 projects, adjusting the budget within the limit. At the same time, the Korea Meteorological Administration requested an additional 52.2 billion won increase through an outside-the-limit budget request. Key projects such as expanding the meteorological observation network and developing next-generation air traffic technology, as well as government policy projects like the Korean New Deal, were included in the outside-the-limit budget.

‘Outside-the-limit’ Budget Requests as a Custom Despite No Legal Basis

Some ministries used unofficial increase requests to protect their budget projects. The Military Manpower Administration (Byeongmuchung) requested the full spending limit of 247.8 billion won when preparing the 2021 budget. Since the budget increase rate was low at 3.2%, the Military Manpower Administration devised a 'problem project request plan.' Because the MOEF strongly demanded budget cuts citing a decrease in military manpower resources, the idea was to comply with the limit but submit additional budgets separately. The additional increase budget was about 9.2 billion won, covering meal and travel expense adjustments, outdated system replacement, and content production.

The government maintains that outside-the-limit budget requests are inevitable when planning new projects. New projects undergo rigorous feasibility reviews by the Budget Office. If they fail, the main budget is reduced accordingly, and opportunities to apply for other budget projects decrease. For ministries, submitting mandatory and continuing projects with a high chance of approval first and negotiating new projects separately is the best way to increase their budget.

The problem is that outside-the-limit budgets are de facto 'note budgets' with no legal basis. According to Article 32 of the National Finance Act, budgets are formulated 'based on budget requests that comply with regulations, submitted to the Minister of Economy and Finance.' There are no related regulations for outside-the-limit budgets. This means the nation's annual finances are formulated based on customs rather than legal documents. Post-monitoring is also difficult. Budget requests under information disclosure lawsuits may be accessible to the public depending on the outcome, but it is practically impossible to know the format or amount of outside-the-limit budgets submitted.

The MOEF's stance is that 'in principle, outside-the-limit budget requests are not considered,' but in practice, they accept it as a natural procedure. They supervise whether ministries include national agendas or mandatory expenditures in outside-the-limit budgets and verify by comparing outside-the-limit budget requests during the review process. A MOEF Budget Office official said, “(Outside-the-limit budgets) have no legal basis,” but added, “If ministries submit requests for more budget, we cannot just ignore them.”

Meanwhile, calls are growing for the budget formulation process to be conducted transparently in accordance with legal procedures. Recently, the National Assembly Budget Office released a report titled 'Analysis by Committee of the 2023 Fiscal Year Settlement,' arguing that “Considering the principles of budget transparency and disclosure under the National Finance Act, the effects of disclosure, and past disclosure cases, it is necessary to disclose the status of budget requests.”