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Title Stocktaking of Fiscal Demands for Bills Approved in 2017

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    100
  • Date
    2018-04-19

Abstract

1. Purpose and Necessity of Scorekeeping

  • Purpose
  • Scorekeeping is intended to estimate changes in the projected revenues and expenditures of the central or local governments upon enforcement of legislation approved by the National Assembly.
  • Scorekeeping is a useful instrument to analyze fiscal impact of legislation on the central or local governments.

※ Scorekeeping compares the proposed budget to the current level (baseline)* to estimate the additional fiscal requirements**that may arise resulting from the enforcement of newly enacted legislation.

* Fiscal requirements under the assumption that current laws and systems remain unchanged

** Since additional fiscal requirements are proposed against the current level (baseline), the fiscal impact of legislation can be more accurately determined than by simple comparison with past results.

Effect of enactment and revision of legislation (Scorekeeping = ∑Cost estimates of passed legislation) Baseline for year t Results of year t Year t Year t+1
  • Necessity
  • Although cost estimate reports drafted by the National Assembly Budget Office (NABO) and other institutions are used as references during deliberations of bills in accordance with the Cost Estimates for Bills* system currently in force, scorekeeping is needed for the following reasons:
  • First, it is necessary to verify the estimates for bills finally approved by the National Assembly plenary session.
  • Second, in case cost estimate reports are not attached to bills proposed by standing committees or others for unavoidable reasons, the cost estimates need to be made afterwards.
  • Third, the connection between legislation and public finance needs to be extensively analyzed by comparing the additional fiscal requirements and the budgets of related fiscal programs.

* Subject to Article 79-2 of the National Assembly Act where a lawmaker proposes a bill accompanying measures on budgets or funds, a cost estimate report should also be attached.



2. Outcome of Scorekeeping for 2017

  • Budget-related legislations approved in 2017 and their budget justifications
  • The 20th National Assembly passed 810 bills in 2017, of which 228 bills were related to budgets (28.1%).
  • The budget-related legislations had a total of 436 budget justifications, of which 213 justifications were estimated (48.9%) except for budget justifications that could not be estimated or had insignificant effect on spending.

Budget-related legislations approved in 2017 and their budget justifications

 

Total

Lawmaker

Committee

Government

Number of passed legislations

810

382

345

83

Number of budget-related legislations

228

68

143

17

- Number of budget justifications proposed (A)

436

112

294

30

- Number of scorekeepings conducted (B)

213

44

155

14

(B/A, %)

(48.9)

(39.3)

(52.7)

(46.7)

 

  • Budget justifications for revenues
  • The implementation of budget justifications for revenues approved in 2017 is expected to increase average annual revenue by KRW2.6335 trillion over the five years from 2018 to 2022.
  • Average annual revenue increases of KRW 1.9195 trillion due to a rise in income tax rates, etc. (Income Tax Act); KRW 2.0855 trillion due to a rise in corporate tax rates, etc. (Corporate Tax Act); and KRW 135.8 billion due to a rise in charges on e-cigarettes (National Health Promotion Act); and an average annual revenue decrease of KRW 3.4288 trillion due to the Restriction of Special Taxation Act*

* For a budget justification that has a term of validity, the increase/decrease in revenues resulting from the passage of a bill is estimated based on the assumption that the term of validity is not extended.

 

KRW 1.9trillion(annual average) IncomeTax Act CorporateTax Act KRW 2.1trillion(annual average) National HealthPromotion Act KRW 100billion(annual average) Restriction of SpecialTaxation Act KRW 3.4trillion(annual average) KRW 2.6 trillion(annual average for the five years from 2018 to 2022)

  • Budget justifications for expenditures
  •  The implementation of budget justifications for expenditures approved in 2017 is expected to increase average annual expenditure by KRW 11.8779 trillion.
  • The average annual increase in mandatory expenditures is projected to total KRW 10.9926 trillion*: e.g., average annual increases of KRW 769.5 billion (KRW 629.2 billion for the central government, KRW 140.3 billion for local governments) due to changes in eligibility for housing benefits (Housing Benefits Act) and KRW 680.6 billion due to the recognition of accidents occurring during commuting by normal routes and methods as occupational accidents (Industrial Accident Compensation Insurance Act).

*Additional fiscal requirements (annual average of KRW 9.5425 trillion) for the legislations of which the term of validity is extended (National Health Insurance Act setting out the national subsidy for national health insurance; National Health Promotion Act) are included. If additional fiscal requirements for legislations are related to mandatory expenditures that were not approved in 2017 but reflected in the 2018 budget (Child Benefits Act, Basic Pension Act, and Disability Pension Act), fiscal requirements for mandatory expenditures increase to an annual average of KRW 15.6836 trillion.

  • The average annual increase in discretionary expenditures is expected to be KRW 885.3 billion* due to the investment in the Korea Ocean Business Corporation (Korea Ocean Business Corporation Act), relocation of the Ministry of Government Administration and Home Affairs to Sejong City (Special Act on the Construction of Multifunctional Administrative City in Yeongi-Gongju Area for Follow-up Measures for New Administrative Capital), etc.

* Additional fiscal requirements (annual average of KRW 281 billion) for the legislations of which the term of validity is extended are included.

 

Outcome of scorekeeping by expenditure type Number of budgetjustifications Average annual estimates(next five years, KRW trillion) 129cases 11.0 0.9 123 6 11.9 Mandatory expenditures Discretionary expenditures

The average annual increase in mandatory expenditures is projected to total KRW 10.9926 trillion*: e.g., average annual increases of KRW 769.5 billion (KRW 629.2 billion for the central government, KRW 140.3 billion for local governments) due to changes in eligibility for housing benefits (Housing Benefits Act) and KRW 680.6 billion due to the recognition of accidents occurring during commuting by normal routes and methods as occupational accidents (Industrial Accident Compensation Insurance Act).

The average annual increase of discretionary expenditures is expected to be KRW 885.3 billion.

  • The average annual expenditure for the healthcare sector is KRW 9.5391 trillion, accounting for the largest percentage of the national treasury disbursements; that for social welfare is KRW 1.386 trillion; and that for transportation and logistics is KRW 329.6 billion.


3. Implications

  • Scorekeeping will lay the groundwork for the estimation of additional costs arising from the enforcement of legislations passed by the National Assembly.
  • In case cost estimate reports are not attached to bills proposed by committees or others for unavoidable reasons, the cost estimates can be made afterwards with the result of complementing the current Cost Estimates for Bills system.
  • The fiscal impact of legislation needs to be analyzed consistently by making cost estimates for an increasing number of budget justifications.
  • In case fiscal rules are introduced in the future to improve the control of state finance, scorekeeping is needed in order to confirm whether the rules are observed.
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