Just what was the massive 3 trillion yuan in revenue collected by the Chinese Government last fiscal year used for? This is a big question swirling around the conversation tables of a nation eager for answers.
Most Chinese people are now increasingly aware of the right to know how governments at all levels spend their money and are keen to be involved in the national campaign for accelerated construction of a more rational and transparent public financial system.
Public finance
As a matter of fact, China put forward public finance reform as far back as 1992, with the main idea of allocating more capital to public service sectors. The system was not initiated, however, until 1998.
According to Minister of Finance Jin Renqing, in the five years from 2006, China will stick to a more people-oriented fiscal policy to allow taxpayers to enjoy the fruits of financial reform.
It is vital to optimize the state investment structure, against the backdrop of relatively overheated investment and a downturn in consumption, he added, saying government investments will gradually retreat from more market-driven sectors and be transferred to develop poverty-relief projects and aid low-income groups.
Jin revealed that priority would be given to expanding employment and improving social security. In addition to the tax support on employment and reemployment, more capital would be used to streamline the social security network for a sustainable and harmonious society.
The minister also called for more attention to be paid to compulsory education, medical services, and public welfare, while also putting emphasis on an increase of farmers’ income and coordination of regional development to narrow the widening gap between the rich and the poor.
Budget planning remains incomplete, noted Liu Hezhang, a member of the Standing Committee of the National People’s Congress (NPC), China’s top legislature, demanding that all accounts paid by the state finance be transparent.
Though a budget report is submitted by the Ministry of Finance to the annual NPC session for deliberation every March, Liu said, it fails to give a complete picture of the budget planning since the report contains only part of government expenditures, namely, budgetary allocations. In fact, other capital sources of the government, such as off-budget funds and bonds, still remain ambiguous to lawmakers, he added.
Transparent budgets
UPPING HEALTH BUDGETS: Doctors treat a patient in a village clinic in Henan Province. The Chinese Government pledges to offer more financial support in rural areas for easier access to medical care
Researcher Zhang Ming, from the Chinese Academy of Social Sciences, said the Ministry of Finance has been looking at a more transparent and rational budgetary system.
According to Zhang, the current public expenditures are distributed through three channels:
First, spending goes to the public service sectors, including programs strengthening organs of state power and the administration service. Legislative, judicial, executive and military defense departments are set up as state organizations, but due to the nature of their daily operations they cannot generate their own funds. Therefore, public financial support is essential to guarantee their regular service and normal work. Public welfare’s main source of income also comes from the government, for example, the outlays on compulsory education, research and development institutions, hygiene and disease control programs, cultural relics protection work, national libraries and museums. Other units such as schools and institutions of higher learning, bodies to protect and promote traditional cultural heritage and special artistic groups are permitted to charge consumers for part of their funding, since public expenditures only ensure their basic operating costs.
Second, state financial investments support industrial development. Public budget planning fundamentally targets non-profit infrastructure, such as roadways, bridges and airports. Hitech programs featuring prohibitive costs and high risks, such as aerospace, new resources and material exploration, also need government funding, as well as the agricultural sector.
Third, expenditures are used as a tool for transferring payments, balancing the financial capability of governments at all levels and aiding underdeveloped areas. These transfer payments are a vital means of redistribution to maintain even development in the nation as a whole. Another system is to subsidize corporations and citizens. Public expenditures on corporations are aimed at fostering emerging industries and making up losses caused by partially state regulated commodity prices. For citizens, it will be used to help with social welfare, as endowment insurance, unemployment compensation, medical care, guarantee for minimum income, and disaster relief.
Concerning the auditing of every account on fiscal expenditures, the NPC is training professional staff who will tightly control what is spent and where it is spent.
In recent years, with growing national tax earnings, public criticism has increasingly centered on rough budgets and random spending. More and more people are aware of the need to see transparent budget reports, believing that they are financial plans of the people rather than top secret state documents.
However, people also believe that a public finance framework with no teeth at this preliminary stage cannot realize a transparent operation right now.
Problems ahead
Zhang Xin, Director of the School of Economics, Xiamen University, complained that China’s fiscal expenditures are overloaded for historical reasons, as little involvement in welfare programs in the past makes it hard to get close to real public spending.
“In fact, there should not be such items as off-budget expenditures, which are likely to cover up some problems,” Zhang said.
The additional and off-budget funds raised and spent also cause additional problems for supervisory departments as far as evaluation and surveillance of the money is concerned.
It is estimated that less than one third of fiscal expenditures have been included in the state budget. “It is imperative to form a scientific budget planning program based on rules. Any violation should be investigated and punished, to curb corruption,” Zhang emphasized.
Jing Ming, an expert from the Ministry of Finance, agreed with Zhang on the point that the budgetary drafts should be submitted to the NPC for deliberation earlier than the beginning of the fiscal year, leaving more time for further examination and revision.
The major source of financial revenues is from public taxes, but the right to decide how to spend the money is dominated by several government departments, seldom giving taxpayers a say.
“We still care about the efficiency of investments,” said researcher Zhang. “In the past, much capital was injected to state-owned enterprises rather than public sectors, leading to a capital thirst in environmental protection, education, medical service, social security and infrastructure.”
Zhang added that fiscal expenditures are expected to do more than just keeping a balance with revenues. They should also be used to close China’s huge wealth gap and provide social welfare, he said.