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Introducing a pre-budget system for the 700 trillion won era

Published: 05 Nov. 2025, 00:04

Shin Hae-ryong

The author is a professor at Chung-Ang University Graduate School of Public Administration and former chief of the National Assembly Budget Office.

Following a revision of the Government Organization Act, the Ministry of Economy and Finance will be split in 2026 into the Ministry of Finance and Economy and the Office of Planning and Budget. Under President Kim Young-sam, the two ministries were merged into a single agency. President Kim Dae-jung then separated them again. They were reunited during the Lee Myung-bak administration and remained integrated for 18 years, until President Lee Jae Myung decided to split them once more. This continual institutional shifting reflects a long debate over how the nation should manage revenue and expenditure.

President Lee Jae Myung, bottom, delivers his budget speech at the National Assembly in Seoul on Nov. 4, as speaker Woo Won-shik sits above him. [YONHAP]

Integration and separation each bring benefits and risks. When a single ministry handles both revenue and spending, it can coordinate tax and expenditure policy more effectively while maintaining fiscal discipline. But concentrated control over both taxation and budgeting risks creating an oversized bureaucracy. On the other hand, separation enables checks and balances by dividing tax and budget authority, but it can slow responses to economic shifts and lead to larger fiscal deficits if political bargaining prevails.

On Nov. 4, President Lee delivered his first parliamentary address on the national budget since taking office. The government’s 2026 spending proposal reached 728 trillion won, surpassing the 700 trillion won mark for the first time in Korea’s history. The scale and complexity of public finance will continue to grow. Population aging and low birthrates are driving a rapid increase in welfare spending, while addressing climate change and securing artificial intelligence sovereignty will require massive investments. Yet the fiscal base remains weak, and government debt is rising sharply.

Peter Drucker warned that the greatest danger in times of turbulence is acting with the logic of the past. Can Korea’s current fiscal structure remain sustainable? If not, what reforms are needed to maintain national prosperity?

A viable solution is the introduction of a “Pre-Budget” system.

Adopted by major OECD countries in the mid-1990s, the system requires governments to submit fiscal guidelines — such as expenditure ceilings and fiscal balance targets — to parliament before the full budget is drafted. It thus separates debate over overall fiscal direction from negotiations over individual projects.

Korea nominally operates a medium-term fiscal planning framework through the National Fiscal Management Plan. But because it is submitted to the National Assembly in early September, alongside the main budget bill, lawmakers have little time to review fiscal policy from a long-term perspective.

A small procedural change could make a large difference. If the fiscal management plan were submitted to parliament five months earlier, in April, and if budget guidelines included total fiscal limits and spending caps by ministry, it would lay the groundwork for a pre-budget process. Parliament could then conduct open debates on revenue, expenditures and fiscal balance before deliberating the full budget. This would enhance both fiscal transparency as well as the democratic legitimacy of budget decisions. It would also provide political backing for difficult decisions taken by the government during budget formation.

The headquarters building of the Ministry of Economy and Finance in Sejong [MINISTRY OF ECONOMY AND FINANCE]

To make this work, the National Assembly’s budget review system must also be reformed. Currently, the process follows a two-step approach: preliminary review by standing committees followed by a comprehensive review by the Special Committee on Budget and Accounts. A pre-budget process would require a three-step, top-down structure: first, a total expenditure review by the budget committee, followed by autonomous allocation within each standing committee under those limits and then a final comprehensive review.

In the long term, lawmakers could consider enacting a National Assembly Budget Act to institutionalize such changes.

Splitting the finance ministry and budget office is not a new road, but rather a return to an earlier approach. Precisely because this path has been taken before, the government should carefully review past practices and use that experience to craft a road map for pre-budget reform. Ensuring fiscal soundness, effectiveness and predictability must be at the center of public finance in this era of 700 trillion won budgets.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.