Transparency seen as the key to budget reform

Editor's Note: In the previous two issues, we discussed how the fiscal system reforms would reshape the relationship between the central and local governments and how the tax reforms may add costs to some companies. The last article of the series talks about budget system reform.

With nearly 13 trillion yuan ($2.08 trillion) in revenue last year, the Chinese government might be one of the best money spinners globally, but its financial ability is not necessarily in line with its massive fortune.

Preparing a budget for a country with 1.3 billion people is never an easy task, and neither is balancing income and expenditure, but the top decision-makers are keen to improve governance via reform of the budget system.

"More transparency should be the first priority of budget reform," Finance Minister Lou Jiwei said in an interview earlier this month. In March, the Finance Ministry's annual budget report stated that government-funded organizations at all levels should disclose their budget and final accounts unless the information is classified.

But the government's account book has become more unclear for taxpayers in recent years despite the rapid growth in fiscal revenue, as local governments explore irregular revenue sources and sometimes fling their money around.

The growth rate of China's broad government revenue has been expanding at a speed nearly twice as fast as GDP growth during the past two decades. In contrast, the share of tax revenue in total government income has been declining, from 98 percent in 1994 to 86 percent in 2013. The rest, which is non-tax revenue such as fines and confiscations, amounted to nearly 2 trillion yuan last year.

While experts call for more efficient budget execution, Wei Sen, deputy director of the school of economics at Fudan University, said the key to a transparent budget system is to bring in more supervision.

"Fiscal reform is an economic term, whereas reform in the budget control system is more about bringing in more democracy and the rule of law. They are different concepts, though very much related," Wei said.

Until recently, the budget system reform officials talked about was more on the economic side, and Wei said a more important issue, a forceful supervision on budget planning by the National People's Congress, the top legislative body, is yet to be written on China's reform agenda.

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