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1、 “Central-local Relations Revisited: the 1994 Tax Sharing Reform and Public Expenditure Management in China”1 Christine P.W. Wong World Bank Office in China July 2000 As China moves forward in its transition toward a market economy, the budget becomes increasingly important as a policy instrument. A
2、long with monetary policy, it is the Governments main tool for maintaining macroeconomic stability and allocating resources to achieve policy objectives, taking over the role that used to be preformed by the Plan. As the Plan is stripped of its resource support and transformed into an indicative gui
3、de, the budget becomes more clearly a reflection of Governments policy intentions. Through the transition, the budget finances some new tasks, such as the social responsibilities formerly financed by state-owned enterprises (SOEs), and phases out some old ones, such as investments in commercial oper
4、ations. The budget will also have a role in resolving the legacy of the planning system, which left banks severely undercapitalized, pension systems underfunded, and many SOEs in the red. In the economic slowdown of the late 1990s, government spending became Chinas key tool for stimulating domestic
5、demand and employment growth. The elevated role of the Budget brought new scrutiny to the health of the fiscal system and how well it serves public needs. In a recent report, the World Bank found the Chinese budget to be weak and largely ineffectual in performing its key functions of maintaining agg
6、regate fiscal discipline, matching resources to government priorities, and delivering services efficiently.2 Chinas budget system and processes give spending units too much authority and require virtually no accountability, and thus provide a weak foundation for government prudence, accountability,
7、and responsiveness. The government does not adequately track where, how, or how much public money is spent, what services the public sector delivers, or how many people the state employs. 1 Paper for the International Conference on “Central-Periphery Relations in China: Integration, Disintegration o
8、r Reshaping of an Empire?” Chinese University of Hong Kong, March 24-25, 2000. The views in this paper are those of the author and do not necessarily represent those of the World Bank. 2 World Bank, China: Managing Public Expenditures for Better Results, 2000. 2 Many of these findings were echoed in
9、 the National Auditor-Generals stinging criticisms issued in June 1999, at the annual meeting of the National Peoples Congress Standing Committee, which focused especially on the lax management of public funds in the implementation of the 1998 budget. In the wake of these criticisms, the NPC ordered
10、 the Ministry of Finance to implement some immediate changes.3 Delivering these changes will require overhauling the core processes of budget preparation and execution, as well as funds management. Through the 1990s the government has made a number of promising reforms in budgetary management: passi
11、ng the Budget Law and experimenting with new budgeting techniques. Reform of extrabugetary funds began in 1996 and intensified in 1998 and 1999. In 1999 the MOF began to formulate organizational budgets that show all budgetary, extrabudgetary and other resources and spending for each ministry4. Mini
12、ster of Finance Xiang Huaicheng also announced plans for treasury reform to improve financial management of public funds, and introduction of new standards for government procurement. These measures comprise a large, complex and ambitious package of reforms that will be crucial in moving China towar
13、d a modern budget management system and a well-functioning public sector. However, their successful implementation hinges on support from central ministries and local governments. There is a real danger that if the key reforms of extending budgetary control over extrabudgetary funds, and treasury re
14、form and reform of the budgeting system are perceived as centralizing reforms that enhance the power of the Ministry of Finance, they will meet with fierce resistance. MOFs failed attempt to introduce a fuel tax in 1999 serves as a clear warning of this danger. Proposed as a replacement for the plet
15、hora of local levies on the purchase and use of vehicles, the national fuel tax was intended to rationalize the financing mechanisms for road building and maintenance. In spite of MOFs promise to return all the revenues to local governments, rollout of the tax has been deferred indefinitely.5 3 Thes
16、e changes include speeding up the budget preparation cycle, consulting with the NPC in greater detail on budget formulation, shifting to an organizational (departmental) presentation of the budget, and introducing standardized procurement guidelines. 4 In 1999 MOF presented organizational budgets for four ministries to the NPC: Ministry of Education, the Ministry of Science and Technology, the Ministry of Labor and Social Security and the Ministry of Agr
