Closed-door Budget Law Draft Amendment：An Extremely Setback
In July 6, the website of the National People’s Congress (NPC) announced the Budget Law Amendment of the People’s Republic of China (the 2nd Review Draft) (hereinafter referred to as the “Draft”), and solicited opinion from the society publicly. So far, the full text of the new Draft finally has been known to the academic and public opinions. Except that procedural provisions such as the standardization of non-budget revenue, the refinement of budgeting, etc. have been improved slightly, the extent of improvement is limited on the whole; furthermore, the Draft faces a serious regression in the supervision provisions of the NPC and the Central Bank. Therefore, it is an extremely rare setback in law amendments in recent years.
The current Budget Law was passed in 1994. At that time, the system of tax distribution was just enforced, the administrative officers and the taxpayers were lack of understanding and the wording of statements was not very standardized. So in 1997 the NPC proposed to revise the Budget Law. During the period, due to the resistance of the Ministry of Finance, the revision did not go well. In 2006, due to absorbing the more advanced experiences of foreign budget system, the Budget Law Amendment led and drawn up by the Budget Committee of NPC incurred strong oppositions from the Ministry of Finance and other government departments, who had opinions that there were the excessive restriction and supervision for administrative organizations. So the Draft was on the shelf. Therefore, when restarting the revision of the Budget Law in 2009, the administrative departments greatly increased their participations, and the NPC and the Ministry of Finance drew up plans respectively, which would be integrated into the Draft. The Draft had to be further passed through the discussions and modification in the State Council executive meetings, where the Ministry of Finance took a leading role.
What problems exist in the current Budget Law? In a word, the links of budget’ policy-making, execution and supervision are lack of defining the concreteness, operability or specific requirements. Therefore, the administrative departments have strong power in the budget process, but the voice of taxpayers and legislature is relatively weak. Gao Qiang, who was in charge of Budget Department of the Ministry of Finance, summarized six aspects: budgeting integrity, budget management and execution, financial mechanism and transfer payment system, local government debt, budget supervision, illegal act and budget openness.
Wealth is the affairs of state. The budget is the revenue and expenditure of the national wealth, and is the most important event in the daily life. Those things mentioned repeatedly in recent years, i.e. the higher tax burden, rich country with poor people, or the Ministry of Finance making a concentrated effort to spend money at the end of year, the establishment of unit-owned exchequer, countless image projects, have various complicated relationships with the failure of the Budget Law. Even a minor change of the provision in the Budget Law Amendment will concerns hundreds of billions of capital in reality. Therefore, the revision of Budget Law should arouse public attention and involvement.
However, the Budget Law does not arouse a strong feedback in the public. First, its influence on the individual is relatively indirect, not just like individual income tax, the Labor Contract Law, etc., which are closely relevant to personal interests. People cannot realize that the Budget Law directly determines how much tax they need to pay and what kind of public services they can get. Furthermore, some people negatively believe that in the current system, once tax has been levied, how to spend money is beyond the reach of the common people. Some scholars also attribute disputes in the revision of the Budget Law to the conflicts of interests of various departments. All these have restricted the public participation in the Budget Law.
But the lower public participation of the Budget Law is not majorly caused by the indifferences of taxpayers. The revision process of the Budget Law has been continually kept in secret out of the public. Not only the media seldom reported it, but the past practice of asking for the opinions of academic circles was out of sight. Until the end of 2011, the opinions of a few experts began to be asked, and until the last moment of the 2nd review, the full text is released to the public. This kind of law revision without reference to the public opinion is completely contrary to the practice of the Law of Criminal Procedural, the Real Right Law, the Labor Contract Law and other laws passed in recent years.
Why is the revision of Budget Law kept in secret? In the end, it is because the revision of Budget Law led by of the Ministry of Finance puts too much emphasis on the power of the administrative departments, especially that of the Ministry of Finance. This legislative thinking violates the government management mechanism of the modern rule of law. In the society where the taxpayers’ consciousnesses are increasingly awakened, they are afraid that if the public know it too earlier or too much, the Draft will be hard to be passed.
In the Article 51 of the Draft, budget revenue should be turned over to the National Treasury (hereafter referred to as the N.T.) and lawfully established Special Fiscal Account in time and in full amount. The new Draft newly adds “Special Fiscal Account”. In fact, with the N.T., no additional fiscal account should be established. In more than ten years, all levels of governments departments have set up non-countable fiscal accounts besides the N.T. in the Central Bank. There are so many accounts that the government at a higher level and the Central Ministry of Finance cannot know them clearly. In recent years, the Ministry of Finance has been investigating the unit-owned exchequers thoroughly, standardizing, reducing and merging Special Fiscal Accounts. In Jiangsu Province and other places, the CFOs deposited money in commercial banks in personal, sought their personal gains, etc. It is puzzling that facing this situation, what the Ministry of Finance can think about is not how to eliminate this behavior, but to legitimize it through the legislation, which even deviates from their own efforts in recent years.
Excessive budget balance is a long-standing problem in more than ten years, and is the important reason for the fast rise of tax burden, but the Article 61 of the Draft stipulates: “If the revenue exceeds the expenditure, except for the expenditures in accordance with the laws, administrative rules and regulations, other can be used to offset the deficit, or as the budget stabilization funds to offset the deficiency of annual budget fund in the following years”, which completely ignores the power of the taxpayers and the NPC. If the excessive budget funds are determined by the Ministry of Finance, what is the significance of the budget?
The Budget Law of 1994 regulates that the business of Central National Treasury is managed by the People’s Bank of China, but the Article 54 of the Draft deletes this provision and increases the management and supervision of National Treasury of Ministry of Finance. However, to its basic principle, the Ministry of Finance acts as the “Accountant” of National Treasury, and the Central Bank acts as the “Cashier”. Canceling the manager system of the Central Bank is equivalent to appoint the Ministry of Finance simultaneously to be the accountant and the cashier, which is a serious regression of legislation! Even in the enterprise with the disordered governance structure, such appointment is really rare, not to say a major program of national budget.
Throughout the Budget Law Amendment, many provisions only set up the principles (which are quite obscure and random), and specific provisions are authorized to the State Council or the Ministry of Finance for the formulation. In the four types of budget, the Budget Law only stipulates public budget, and the rest three types of state-owned capital management, social security and government funds budget are authorized to the State Council for the separate stipulation. The Ministry of Finance has the too strong power in the links of budget adjustment, budget enforcement and budget supervision, and we cannot see much power owned by the NPC and the taxpayers. In the disposal of technical details, there is no universal enabling provision of the administrative departments, but these provisions are ubiquitous in the legislation. As stipulated in the Article 43 of the Amendment, in the provisions of budget report reviewed by the NPC, we cannot see “other matters which should be reviewed in the NPC’ opinion”.
The Ministry of Finance also argues that it is the international practice that National Treasury management is in the charge of the Ministry of Finance with the assistance of the Central Bank. What’s more emphasized and more important in many international practices is that the legislature fully owns the budget decisions-making’s revision right and veto. The essence of the budget international practice is not the details of the Ministry of Finance in charge of National Treasury, but the separation of powers, openness and transparency. Which article of the Budget Law led by the Ministry of Finance has met these requirements? Therefore, the Budget Law strengthening the power of Ministry of Finance has no right to talk about the international practices!
The Budget Law is not the law of the Ministry of Finance, but that of the taxpayers. However, what it now wants to restrain is just the power of the Ministry of Finance. When we formulated the Corporation Law, the Securities Law and other laws, their basic provisions to restrict the market economic entities are never detailed enough. Too big companies can only influence a part of people, but compulsory behaviors and levy action do not exist. The governmental affairs involve in all the people, the damages are far more than that of the company. But in the formulation of the law to restrain the power of government, legislation is always too meticulous. Perhaps the new Budget Law maintains or strengthens the power of the Ministry of Finance, but with absolute power, comes no responsibility but crisis. The lessons drawn from the mistakes of the Ministry of Railway must be reviewed, and it is enough for the Ministry of Finance to take warning.
Published on the FT Chinese website on August 2, 2012.
