5. Fiscal and taxation
reforms progressed steadily.
The system of transfer payments was further improved.
The central government's fiscal transfer payments to local governments, mainly
in the central and western regions, came to 709.29 billion yuan in 2007, an
increase of 193.32 billion yuan. This figure includes 250.5 billion yuan in
general transfer payments, which were used to promote a more balanced financial
distribution among different regions. We improved the methods for calculating
fiscal transfer payments and introduced a transfer payment system to assist
cities that had depended on resources that are now exhausted. We adjusted and
improved the "three rewards and one subsidy" policy and increased the rewards to
local governments for balancing financial distributions among counties and
ensuring key expenditures. The central government allocated 34 billion yuan for
rewards and subsidies, an increase of 10.5 billion yuan. This helped to further
ease the financial difficulties of both counties and townships. The proportion
of county-level expenditures to total local expenditures throughout the country
increased by three percentage points compared to the figure before the policy
was adopted. We reviewed special transfer payments and cut their number from 213
to 174. The State Council has reported on standardizing transfer payments to the
Standing Committee of the Tenth NPC.
Important headway was made in taxation reform. The
corporate income tax systems for domestic and overseas-funded enterprises were
reformed, and the new Law on Corporate Income Tax and the regulations on
implementing it went into effect on January 1, 2008. Collection of taxes on
urban land use and vehicle and boat operation is going smoothly after the
revision of related regulations, and the relevant taxation policies were also
further improved. On the basis of the VAT reform trials in northeast China, the
reform was extended to eight industries in 26 old industrial cities in the
central region. Progress in resource tax reform entered a new stage.
Reform of the budgetary system gradually made
progress. The budgetary system for managing state capital was put into trial
operation. The new classification system for government revenue and expenditures
was widely adopted in compiling budgets and final accounts and implementing
budgets. The reform requiring all central and local government departments to
prepare their budgets was deepened, and progress was made in improving the
system of standards for expenditures. Trials to set allowable limits for in-kind
expenditures and to evaluate performance of budgetary expenditures were
conducted. The reform to set up a centralized treasury payment system was
carried out in all central government departments, their subsidiary bodies
responsible for preparing their own budgets, governments of provincial-level
localities and cities specially designated in the state plan, and bodies of most
cities and counties that prepare their own budgets. This reduced the steps in
the transfer of funds. Trials were conducted on the computerized horizontal
integration of the bank accounts for the tax revenue of finance departments and
tax departments with the treasury in more than ten provinces. Reform of the
collection and transfer of non-tax revenue was carried out in approximately 50
central government departments and nearly all localities, ensuring that revenue
finds its way to the state treasury in a timely manner. We improved the
government procurement system and deepened the reform of separating revenue from
expenditures. Steady progress was made in standardizing the distribution of
income to civil servants. Support for corporate and financial reform was also
strengthened.
Overall rural reform was deepened. This reform was
carried out to varying degrees in 31 provincial-level localities across the
country. The tax and fee reform in state-owned farms was promoted, saving 18.56
million farm workers 6.2 billion yuan, or 332 yuan per person. Six billion yuan
was appropriated from the central budget to pay off rural debts that were
incurred in making nine-year compulsory education universal. Local governments
also actively took steps to raise financial resources for this purpose. The
overall reform in large lake regions to ease the financial burden of farmers
there was steadily advanced, saving 26.16 million farmers 2.3 billion yuan, or
89 yuan per person.6. Financial management and oversight were enhanced.
The timeframe for budgetary preparation was extended,
and procedures for preparing and submitting budgets were standardized.
Supervision of budgetary preparation was strengthened. Budget implementation
work was strengthened. Relevant institutions and measures were improved, and
budgetary implementation became more efficient. Trials of paying the expenses of
official business with bankcards progressed smoothly. Review of state-owned
assets in administrative bodies and government-affiliated institutions was
completed. A number of laws and regulations, including the new Law on Corporate
Income Tax, were enacted. Research on reform of government accounting was
deepened. The new General Rules on Corporate Finance and Rules on Finance in
Financial Enterprises were issued and implemented. A system of corporate
accounting norms was steadily implemented in both listed companies and some
unlisted SOEs. The new system of auditing norms was widely instituted in
accounting firms. Notable results were achieved in fiscal oversight. A total of
56.9 billion yuan was found to have been used contrary to regulations or
disciplinary rules, of which 21.5 billion yuan was recovered, and responsible
persons were held accountable for the losses. Steady progress was made in the
computerization of financial management, and its successes are gradually
becoming apparent. The State Council gave careful consideration to the relevant
decisions and resolutions of the NPC as well as the comments and suggestions
raised in the auditing report, and it requested that the Ministry of Finance and
other relevant departments willingly accept the oversight by the NPC, the
auditing authorities and the public, and take effective steps to rectify their
problems. The Ministry of Finance and other relevant departments have worked
hard to identify the causes of problems and conscientiously rectified them. The
State Council has submitted a report on this matter to the Standing Committee of
the Tenth NPC.
The year 2007 was the last year in the term of this
government. A review of the past five years shows that work in public finance
took on a new aspect.
Financial strength was constantly increased. Between
2003 and 2007, national revenue totaled about 17 trillion yuan, 10 trillion yuan
more than the total of the preceding five years, and an average annual increase
of 22.1%. National expenditures totaled about 17.7 trillion yuan, 9.6 trillion
yuan more than the total of the preceding five years, and an average annual
increase of 17.6%.
Figure 4 National Revenue and Expenditures from
2003 to 2007
Note:
Figures for 2007 are performance figures and may
differ somewhat from the final accounting figures.
Public finance played an effective role in
macroeconomic regulation. As necessitated by the changing economic situation, we
shifted from a proactive fiscal policy to a prudent one and reduced the central
government deficit considerably. We improved regulatory measures in a timely and
targeted way, which in turn promoted sound and rapid economic development.
Figure 5 Central Government Deficit in Yuan and as a Percentage of the GDP
Public finance played a visible role in ensuring the
wellbeing of the people and improving their lives. We improved the structure of
expenditures. More financial resources were expended on improving people's
lives. Vigorous efforts were made to establish long-term mechanisms for ensuring
the wellbeing of the people and improving their lives. All this contributed to
the building of a harmonious society. Between 2003 and 2007, 2.43 trillion yuan
of national revenue was spent on education, 629.4 billion yuan on medical and
health care, 1.95 trillion yuan on the social safety net and 310.4 billion yuan
on culture and sports. Compared with the preceding five years, the above
expenditures are increases of 126%, 127%, 141% and 130% respectively. The
central government spent a total of 1.6 trillion yuan on solving problems
related to agriculture, rural areas and farmers.
Major progress was made in fiscal and taxation
reforms. The agricultural tax, livestock tax and special product tax were fully
rescinded, and the tax and fee reform in rural areas successfully entered a new
stage of overall rural reform. The reform of the export tax rebate system
obtained significant success. The taxation system was further improved, and
various reforms in the budgetary system were deepened. Improvement was made to
the financial system, and reform of the income distribution system steadily
advanced.
Steady progress was made in the standardization of
financial management and oversight. Budgetary preparation and implementation
were improved. Management of state-owned assets by administrative bodies and
government-affiliated institutions was gradually strengthened. Much progress was
made in running fiscal affairs through legal means. The financial accounting
system was improved; the financial oversight mechanism was strengthened, and the
computerization of financial management was accelerated.
At the same time, we are fully aware that there still exist problems concerning public finance work. Budgets are crudely prepared, and they are not scientific and accurate enough. The fiscal systems at and below the provincial level need further improvement, the transfer payment system is not yet sufficiently standardized, and some counties and townships are still experiencing financial difficulties. The structure of taxes and fees is not reasonable. The proportion of non-tax revenue in some localities is still too high. The fiscal expenditure system needs to be improved, and support to weak links including agriculture, rural areas and farmers needs to be increased. Fiscal management needs to be more meticulous. There is still serious loss and waste. The legal framework of public finance is weak. The risk of liabilities in public finance cannot be overlooked. We need to give these problems our full attention and take further measures to solve them.
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