Current State of Contributions and Improvement Initiatives

Published on May 18, 2022
Published by Public Institution Evaluation Division

   The scale of government-funded projects conducted pursuant to Article 12 of the「National Finance Act」under the category of contributions (350 items, 360 items) in the annual expenditure budget corresponds to a whopping 53.3 trillion won (8.8% of total expenditures) as of 2022. The amount of such contributions is on the increase every year, with an average annual increase of 8.9% between 2017 and 2022. Although contributions, accounting for a large proportion of treasury expenditures, need to be managed reasonably and efficiently, difficulties in doing so have been cited often, because flexibility and discretion in the course of fund execution have been exercised in consideration of their nature. For this reason, this report intends to review the key issues related to legal and institutional factors that hinder proper and efficient operation of the contribution budget and find ways for improvement.
   First, a legal basis for the types of contributions not covered by Article 12 of the「National Finance Act」needs to be established. The Act does not include the definition of what constitutes a contribution, and its purpose is limited to “conducting national R&D projects and managing an institution that serves public benefit”, leading a certain type of contribution, i.e., project contributions, that makes up 42% of the total contributions budget, to be left to interpretation. Therefore, project contributions whose size and importance have changed since they were first included in the National Finance Act need to reflect such changes. Furthermore, in addition to the existing two project types in the provision, other project types eligible to be conducted as such should have their characteristics and purposes specified as well.
   Second, strict application of the 'legal grounds' for contributions to take place and specific legal provisions should be established accordingly. Article 12 of the「National Finance Act」requires strict legal foundations prior to the execution of the contribution budget to prevent the abuse of contributions which allow a relatively wide range of discretion in execution, and for which consideration is not required. For this purpose, financial support for a project provided in the form of contributions should be made a legal option if related legal grounds are clearly stipulated to back up such practices. In addition, by amending the inconsistent current regulations related to financial support provided via contributions, the legal differences between the operation of institutions and projects conducted should be clearly identified. This will prevent the change of the scope of contribution projects that are currently at the whim of whomever is interpreting clauses in question.
   Third, a uniform settlement rule for project contributions needs to be formulated. Currently, there is no single rule of settlement for contributions, and this leads to settlements being performed in ways that are inconsistent for different contribution projects and contributing institutions. As for project contribution funds, if there are relevant laws and regulations available, settlement is done by observing them, and if they are not available, the relevant government offices are in charge of formulating them whenever need arises. Therefore, to help with transparent management of funds established with contributions, putting in place a common regulatory framework, as in the case for R&D projects, should be a priority.