To define administrative authority is the core of China’s fiscal reform
On February 2, the State Council unveiled Opinions on Reform and Improvement of Central to Local Transfer Payment System (hereinafter referred to as “the Opinions”) to increase the scale and proportion of general transfer payment and gradually elevate the proportion of general transfer payment to above 60%.
Transfer payment is aimed at compensating the payment pressure of equal public service brought about by uneven local governmental fiscal resources. As for China, it means that payment imbalance resulting from mismatching financial resources and administrative authority between upper-level and lower-level governments. Upon the tax sharing reform of 1994, the financial resources of the central government have been enlarging and its expending responsibility has been continuously delegated to local governments, so that the central government has more and more financial resources and less and less spending responsibility, while the local government has limited fiscal revenues but more and more public-service-providing responsibilities. In recent decade, the fiscal revenue of the central government has accounted for as high as more than 50% of the country, but its financial expenditure proportion has gradually declined to 14.6% in 2013 when the expenditure-revenue of local governments was as high as 5 trillion, accounting for 39.3% of national fiscal revenue of that year.
Most of the 5-trillion payment gap of local government should be compensated by the central government through transfer payment. For the time being, the central to local transfer payment is divided into general transfer payment and special transfer payment; the former is aimed at guaranteeing national equal basic public service and its appropriation mechanism generally is calculated according to population size, while the latter is characterized by emergency, trans-region and so on, such as earthquake, flood and other disaster relief affairs and cross-basin pollution affairs, etc.
However, China’s transfer payment structure has not really achieved the above-mentioned goals. At first, the calculation method of general transfer payment mainly pays attention to number of registered population. Then, local government with huge migrant worker inflows will haven’t enough money to provide public service to non-resident as same as urban residents, which results in segment between local markets. This is very apparent in compulsory education, social security and so on. Therefore, the high central to local transfer payment proportion has not really safeguarded China’s market integration.
Secondly, the calculation formula of central to provincial or municipal transfer payment amount is complicated and it mainly takes tax revenue of provinces into consideration. The province paying more will get more, while the one paying less will get less. As a consequence, it has not really achieved the supposed redistributing goal.
Thirdly, the biggest problem lies in special transfer payment. Since the general transfer payment is calculated according to population and other rigid indicator, once determined, the ministries’ approval power on fund use right is greatly diminished, so that the transfer payment is mainly embodied through special transfer payment in recent two decades. In such case, the efficiency of special transfer projects has been low from its establishment to operation.
The Opinions have two core points. Firstly, to classify transfer payment by defining governments’ spending responsibilities, to make it more specific, it means that the transfer payment belonging to local administrative authority will be listed into general transfer payment; while the spending responsibility jointly shared by the central and local or affairs delegated by the central to local will be listed into special transfer payment. This also indicates that the future transfer payment will be mainly general transfer payment. Secondly, according to the previous principle, the Opinions has made it explicit that the proportion of general transfer payment shall exceed 60% and the management of special transfer payment be strictly controlled, put in order and standardized. Taking 2013 as an example, the proportion was elevated from 33.3% to 60% and the amount involved was 1.28 trillion.
Although “the Opinions” has already been a great change to the reform of transfer payment system, there are still a lot of problems. For example, special transfer payment still accounts for a high proportion. Meanwhile, we should not neglect the lobbying power of groups involved in special transfer payments. In addition, it remains unknown as to what extent the Opinions will change the current situation.
Taking a retrospect, the source of transfer payment reform resides in definition of inter-governmental administrative authority. Currently, the definition of governmental administrative authority and inter-governmental administrative authority is rather confused and its legal status is low. Pursuant to Article 8 of the Legislation Law, basic fiscal system can only be determined by law. However, there are only Article 15 and 16 of the Budget Law referring to tax distribution system and transfer payment, and they don’t cover specific definition of inter-governmental administrative authority which is mainly determined by the state council and ministries in practice. Therefore, it is subject to insufficient authorization and random alteration. So we should place priority on legislation and define inter-governmental spending responsibilities from the legal level, so as to restrain the ministries’ boycott on general transfer payment from the fundamental.
Published in Southern Metropolis Daily | 2015-2-5
