REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2007 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2008
First Session of the Eleventh National People's Congress
March 5, 2008
Ministry of Finance
The Ministry of Finance has been entrusted by the State Council to report on the implementation of the central and local budgets for 2007 and on the draft central and local budgets for 2008 for your deliberation and approval at the First Session of the Eleventh National People's Congress (NPC), and also for comments and suggestions from the members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).
I. Implementation of the Central and Local Budgets for 2007
Under the correct leadership of the Communist Party of China (CPC), the people of all China's ethnic groups followed the guidance of Deng Xiaoping Theory and the important thought of Three Represents, thoroughly applied the Scientific Outlook on Development, and comprehensively implemented the principles and policies of the central authorities and the decisions and resolutions of the Fifth Session of the Tenth NPC in 2007. As a result, the national economy continued to grow rapidly, the economic structure and performance improved, and people's lives got better. The central and local budgets were also satisfactorily implemented.
National revenue reached 5.130403 trillion yuan, an increase of 1.254383 trillion yuan or 32.4% over the figure for 2006 (both here and below) and equaling 116.4% of the budgeted figure. This was made up of 2.773899 trillion yuan collected by the central government and 2.356504 trillion yuan collected by local governments. National expenditures amounted to 4.95654 trillion yuan, an increase of 914.267 billion yuan or 22.6% and equaling 106.6% of the budgeted figure. This was made up of 1.144504 trillion yuan disbursed by the central government and 3.812036 trillion yuan by local governments.
The implementation of the central budget is as follows: Revenue totaled 2.858949 trillion yuan, an increase of 734.56 billion yuan or 34.6% and equaling 117.1% of the budgeted figure. Revenue included 2.773899 trillion yuan collected by the central government and 85.05 billion yuan turned over by local governments. Expenditures totaled 2.955749 trillion yuan, an increase of 606.464 billion yuan or 25.8% and equaling 110% of the budgeted figure. Expenditures included 1.144504 trillion yuan disbursed by the central government and 1.811245 trillion yuan paid out as tax rebates and transfer payments to local governments. In addition, 103.2 billion yuan was set aside for the central budget stability and regulation fund for future use. The central government deficit was 200 billion yuan, 45 billion yuan less than the amount approved at the Fifth Session of the Tenth NPC. At the end of 2007, the outstanding balance of government bonds in the central budget totaled 5.207465 trillion yuan, which was under the limit of 5.336553 trillion yuan set for the fiscal year.
Figure 1 Central Government Revenue and Expenditures in 2007
Expenditures in the central budget (including central government spending plus tax rebates and transfer payments to local governments) were as follows: spending on education totaled 107.635 billion yuan, up 76% and equaling 125.4% of the budgeted figure. Expenditures for science and technology came to 99.999 billion yuan, an increase of 26% and equaling 113.5% of the budgeted figure. Expenditures for the social safety net and employment effort came to 230.316 billion yuan, up 13.7% and equaling 114.1% of the budgeted figure. Expenditures for medical and health care reached 66.431 billion yuan, up 296.8% and equaling 212.4% of the budgeted figure. Expenditures for environmental protection amounted to 78.21 billion yuan, up 61% and equaling 164.7% of the budgeted figure. Expenditures for agriculture, forestry and water conservancy totaled 127.449 billion yuan, up 43.9% and equaling 106.2% of the budgeted figure. Expenditures for industry, commerce and banking (mainly consisting of expenditures for ensuring workplace safety, storing grain, cotton, oil and other important goods and materials, and paying off the debts of policy-supported purchases of grain on credit and the interest on these debts) came to 242.916 billion yuan, up 41% and equaling 127.9% of the budgeted figure. Expenses for national defense totaled 348.277 billion yuan, up 18.1% and equaling 100.3% of the budgeted figure. Expenditures for providing general public services totaled 232.301 billion yuan, up 5% and equaling 100.4% of the budgeted figure. Included in this total is 99.345 billion yuan in interest payments on domestic and foreign debts. Expenditures for tax rebates and fiscal transfer payments to local governments totaled 1.092435 trillion yuan, up 21.2% and equaling 108.1% of the budgeted figure.
The implementation of local budgets is as follows: revenue amounted to 4.167749 trillion yuan, an increase of 987.246 billion yuan or 31% and equaling 114.9% of the budgeted figure. This included 2.356504 trillion yuan collected by local governments and 1.811245 trillion yuan in revenue from tax rebates and transfer payments paid by the central government. Expenditures totaled 3.897086 trillion yuan, an increase of 775.226 billion yuan or 24.8% and equaling 107.4% of the budgeted figure. Expenditures included 3.812036 trillion yuan spent by local governments and 85.05 billion yuan they turned over to the central government. Transfer payments from the central government accounted for 36.7% of local government spending nationwide, and the percentage went up to 54.1% in the central and western regions. Revenue exceeded expenditures by 270.663 billion yuan, and this surplus mainly came from the surplus revenue in the central and local budgets that was not spent last year and will be rolled over into local budgets this year. These figures may change when the final accounts are calculated.
Figure 2 Local Governments' Revenue and Expenditures in 2007
The overall situation concerning budget implementation and financial operations in 2007 is as follows:
1. National revenue grew rapidly.
The national economy maintained rapid yet steady development in 2007. Based on this, financial, tax, and customs authorities at all levels worked hard to administer taxes in accordance with the law, made management more scientific and meticulous, improved the quality and efficiency of tax revenue collection and management, and standardized the management of non-tax income. All this resulted in the rapid growth of national revenue. Specifically: Domestic value added tax (VAT) receipts totaled 1.547011 trillion yuan, up 21% and equaling 108.5% of the budgeted figure. Domestic consumption tax receipts stood at 220.69 billion yuan, up 17% and equaling 107.4% of the budgeted figure. VAT and consumption tax receipts from imports totaled 615.221 billion yuan, up 24% and equaling 109.3% of the budgeted figure. VAT and consumption tax rebates for exports came to 563.5 billion yuan, up 15.5% and equaling 115.5% of the budgeted figure, and this was equivalent to a decrease in revenue by the same amount. Business tax receipts reached 658.199 billion yuan, up 28.3% and equaling 113.6% of the budgeted figure. Corporate income tax receipts grew by 37.9% to reach 876.947 billion yuan, equaling 120.2% of the budgeted figure. Individual income tax receipts rose by 29.8% to reach 318.554 billion yuan, equaling 110.8% of the budgeted figure. Stamp tax receipts amounted to 226.176 billion yuan, an increase of 500.5% and equaling 545% of the budgeted figure. Tariff receipts totaled 143.254 billion yuan, up 25.5% and equaling 114.6% of the budgeted figure. Non-tax revenue stood at 569.104 billion yuan, up 22.8% and equaling 111.2% of the budgeted figure.
Figure 3 Breakdown of National Revenue in 2007
It should be noted that the rapid increase in national revenue was mainly a result of rapid yet steady economic development, improved economic structure and efficiency, and strengthened revenue collection and management. There were also unique, policy-related and one-time factors that contributed to the increase. These factors mainly include the following: first, the increases in transactions on the securities market and in the stamp tax rate on securities transactions increased tax revenue by 182.585 billion yuan. Second, tax rebates were reduced by 40 billion yuan due to policy changes, and this was equivalent to an increase in revenue by the same amount. Third, railway transportation enterprises turned over to the central government 19.6 billion yuan from the proceeds of their sale of state assets, and that was a one-time only source of revenue. Fourth, special surcharges on oil sales for the whole year totaled 50.14 billion yuan, an increase of 12.937 billion yuan over 2006 when they were collected for only two quarters.
National revenue exceeded the budget target by 723.9 billion yuan, including a 416.8 billion yuan excess in the central budget. The main reasons for this are as follows. The actual economic growth rate exceeded the target rate. In particular the actual growth in areas that generate tax revenue, including added value of industry and commerce, total fixed asset investment, total volume of imports and exports, total retail sales of commodities, and corporate profits all exceeded the projected figures by a large margin, so the actual tax revenue they generated exceeded the budgeted figures. In implementing the budget, the government introduced new policies for strengthening macroeconomic regulation, such as adjustments of the stamp tax on securities transactions and the policy on export tax rebates, and they also contributed to the revenue increase. In addition, tax collection and management were strengthened, resulting in the collection of a higher proportion of taxes owed.
The surplus revenue in the central budget in 2007, except that portion used to finance additional expenditures required by law, was mainly used in important areas concerning people's lives and for establishing systems and mechanisms in accordance with the Budget Law of the People's Republic of China, the Law on Oversight by the Standing Committees of People's Congresses at All Levels of the People's Republic of China, the Decision of the NPC Standing Committee on Improving Examination and Oversight of the Central Budget, and relevant resolutions and decisions of the Fifth Session of the Tenth NPC, as well as on the basis of comments and suggestions from the Law Enforcement Inspection Group of the NPC Standing Committee, relevant special committees of the NPC and deputies to the NPC.
First, 101.4 billion yuan was spent in compliance with the requirements of the existing financial system and regulations. Of this sum, 66.7 billion yuan was spent to increase tax rebates and general transfer payments to local governments. The surplus revenue of 11.7 billion yuan from the vehicle purchase tax was all spent on road construction, including the maintenance and repair of dilapidated bridges. All the 19.6 billion yuan that railway transportation enterprises received from the sale of their state assets and turned over to the central government was spent on railway construction. In addition, 2.9 billion yuan was spent on science and technology.
Second, 143.7 billion yuan was spent to improve people's lives and strengthen weak links. Of this sum, 16.1 billion yuan went to agriculture, forestry and water conservancy; 21 billion yuan to education; 34.4 billion yuan to the social safety net and employment effort; 31.3 billion yuan to medical and health care; 19.6 billion yuan to environmental protection; 4.8 billion yuan to low-rent housing subsidies; 13.3 billion yuan to public security and general public services; and 1.1 billion yuan to culture.
Third, 171.7 billion yuan was spent to make public finance and economic activities more stable and sustainable. This breaks down as follows: 45 billion yuan was spent to reduce the budget deficit; 23.5 billion yuan went to clearing up historical debts arising from grain policies; and the other 103.2 billion yuan was spent to increase the central budget stability and regulation fund. The State Council has reported its use of the surplus to the Standing Committee of the Tenth NPC.
2. Macro-regulation was further strengthened through public finance.
On the basis of increasing spending on agriculture, rural areas and farmers and increasing transfer payments, we promptly improved measures for implementing a prudent fiscal policy and coordinated these improvements with other policies to solve serious problems affecting economic performance. All this promoted sound and rapid economic development.
We reduced the deficit significantly and improved the mix of central government development investment. The central government deficit was 200 billion yuan in 2007, dropping to 0.8% of GDP. This figure is attributed to a deficit reduction of 30 billion yuan from 2006 in the budget for 2007 and a deficit reduction of another 45 billion yuan when the budget was implemented. Central government development investment in 2007 totaled 134.4 billion yuan. These funds were mainly used to build a new socialist countryside, develop social programs, protect the ecosystem and develop the western region. The pace of budget implementation was adjusted to ensure budgetary funding for key projects.
We implemented fiscal and taxation measures to curb excess liquidity. In accordance with the Resolution of the NPC Standing Committee on Approving the Issuance of Special Government Bonds by the Ministry of Finance to Buy Foreign Exchange and on Adjusting the Limit for the Outstanding Balance of Government Bonds at the End of 2007, the Ministry of Finance issued 1.55 trillion yuan worth of special government bonds to buy 200 billion U. S. dollars of foreign exchange, thus releasing more RMB from foreign exchange holdings and reducing the pressure on implementation of monetary policy. We reduced the applicable tax rate for individual income on savings interest from 20% to 5%. As a result, people's incomes from savings interest increased, while at the same time the impact of rising prices on these incomes was reduced.
We adjusted and improved fiscal and taxation measures to promote the balance of payments. We eliminated export rebates for 553 resource products and products whose production is energy intensive or highly polluting. Export rebate rates were reduced for 2,268 products whose export might easily lead to trade friction. We lowered import tariffs on 511 energy resources and resource products and increased export tariffs on 222 resource products and products whose production is energy intensive or highly polluting. We adjusted the list of commodities whose use is classified as prohibited or subject to some restrictions in the processing trade. Preferential tax treatment was given to the importation of some resource products and major equipment. A policy was introduced to subsidize imports of products and technologies on the list of products and technologies whose import is encouraged. We gave support to enterprises following the "go global" policy.
We improved fiscal and taxation measures to support energy conservation and emissions reduction. The central government allocated 23.5 billion yuan and local governments increased funding to support the launch of ten major national energy conservation projects; build pipe networks for urban sewage treatment systems in the central and western regions; control water pollution in the Huai, Hai, Liao and Songhua rivers and Tai, Chao and Dianchi lakes; and eliminate backward production facilities. We formulated and introduced a policy making it mandatory for governments to buy energy-saving products. Further, the number of products labeled as environmentally friendly and to be given priority in government procurement was increased from 856 to 2,823. A preferential tax policy was introduced to encourage the pumping, extraction and utilization of coal seam gas and to encourage water-conserving irrigation. The resource tax rate on selected taxable mineral products was adjusted to promote rational exploration and utilization of natural resources. Environmental protection and energy conservation were taken as factors for eligibility for preferential tax treatment under the new Law on Corporate Income Tax. We made steady progress in the reform of the compensation system for the use of mineral resources and comprehensively implemented policies for promoting the development of both renewable resources and new energy resources. We made innovations in the mechanism for responding to climate change.
We gave strong support to scientific and technological advances and independent innovation. We increased allocations to the State Natural Sciences Fund, the National Key Technology R&D Program and other research programs. We gave greater support to nonprofit research institutes and scientific research in nonprofit sectors. We also supported the building of a system of industrial technologies for modern agriculture, the establishment of a national platform to develop basic conditions for science and technology, and the creation of national laboratories and national key laboratories. We promoted reform of the system for managing research institutes. We encouraged independent innovation in small and medium-sized science and technology enterprises, launched a pilot project for venture capital investment, and formulated and implemented taxation policies to support the development of state university science parks and science and technology business incubators.
3. We gave more support for the building of a new socialist countryside.
Funding for agricultural subsidies increased substantially. The central government spent 27.6 billion yuan, an increase of 130%, to provide farmers with general direct subsidies for buying agricultural production supplies. It also spent two billion yuan in subsidies for purchasing agricultural machinery and tools, up 233.3%, and 6.66 billion yuan in subsidies for growing superior grain varieties, up 60.5%. Direct subsidies to grain growers nationwide came to 15.1 billion yuan, and in 13 major grain-producing provinces and autonomous regions these subsidies accounted for more than 50% of those areas' grain risk funds. The government set price floors for the purchase of grain and bought 28.95 billion kilograms of wheat. The central government allocated 10.53 billion yuan to support the production of hogs, dairy products and oilseeds and ensure that supplies were adequate to meet demand. We carried out trials to subsidize insurance premiums for essential crops such as rice and wheat in six provinces and autonomous regions. We also supported programs to train 3.5 million rural workers for nonagricultural employment as well as scientific and technological training programs in 20,000 villages to foster a new type of farmer.
Rural working and living conditions were improved. The central government spent 19.46 billion yuan to continue funding the construction of six categories of small rural projects (water-efficient irrigation, potable water supplies, road building, methane production facilities, hydroelectric plants, and pasture enclosure, Tr.) and another 4.2 billion yuan to build small water conservancy facilities and renovate small, dilapidated reservoirs. A total of 11.57 billion yuan was spent to promote overall development of agriculture, resulting in 1.57 million hectares of low- and medium-yield farmland being upgraded and high-grade arable land being cultivated, and in three billion kilograms of grain production capacity being added last year. Part of this sum also went to 1,457 projects to make agricultural operations more industrial. An additional 17.2 billion yuan paid out to the central government in compensation for land converted to development purposes was used to develop and protect primary farmland, improve land and cultivate arable land. One billion yuan was appropriated to promote the development of farmers' specialized cooperatives and the dissemination of agricultural science and technology. In addition, 1.29 billion yuan was spent to improve the distribution of goods and develop the market system in the countryside.
Support was given to fight natural disasters, provide disaster relief and reduce poverty through development. In response to serious natural disasters in 2007, the central government promptly appropriated 13.3 billion yuan for disaster relief, supplemented by generous appropriations from local governments. To intensify poverty reduction through development, the central government spent 14.4 billion yuan mainly in poor areas in the central and western regions. We also made innovations in working mechanisms, which made our poverty reduction efforts even more effective.
We promoted the development of rural social programs. We gave strong support to rural compulsory education, a new type of rural cooperative medical care and other rural social programs. We continued to implement the system for rewarding and supporting some rural families that observed the state's family planning policy and carried out the "fewer children equals faster prosperity" project in the western region. Trials for a special assistance system for family planning were launched in selected areas.
Altogether, 431.8 billion yuan from the central budget was spent on agriculture, rural areas and farmers, an increase of 80.1 billion yuan or 23%. It should be pointed out here that expenditures supporting agriculture, rural areas and farmers do not constitute a single budgetary item. In order to make it easier for you to examine and deliberate expenditures in this area, we have combined all expenditure items related to agriculture, rural areas and farmers so there will be some overlap with expenditures for education, medical and health care, etc.
4. We made further progress in ensuring the people's wellbeing and improving their lives.
We promoted the development of education. Spending of the central government on education totaled 107.635 billion yuan, an increase of 76%. A total of 36.48 billion yuan from the central budget, along with 32.3 billion yuan from local budgets, was spent to fully carry out the reform to introduce a system for guaranteeing funding for rural compulsory education, exempt all the students receiving compulsory education in rural areas across the country from paying tuition and miscellaneous education fees, provide them with free textbooks, give living allowances to students from poor families who stay in school dormitories, raise budgetary funding for operating expenses of primary and secondary schools and increase subsidies for renovating their buildings. All this benefited 150 million students receiving compulsory education in rural areas and 7.8 million students from poor families living on campus. We supported the trials to provide free education to education students at normal universities directly under the Ministry of Education. A new policy system for providing financial assistance to students from poor families was adopted to cover more students and raise the amount of aid they receive. We also gave financial support to students from poor families at regular undergraduate institutions, and vocational colleges and secondary vocational schools in the form of grants.
We stimulated the development of medical and health care. Central government expenditures for medical and health care reached 66.431 billion yuan, a rise of 296.8%. The new type of rural cooperative medical care was extended to reach 730 million rural residents in 86% of the country's counties, and the central government provided 11.4 billion yuan in subsidies for this program. We began trials to implement a basic medical insurance system for urban residents in selected cities, with annual subsidies of at least 40 yuan per person from the central government. A total of 3.4 billion yuan was spent to further carryout the work of providing medical care for needy urban and rural residents. Spending on public health increased, with 9.68 billion yuan used primarily to support prevention and control of major diseases and development of community-based health services.
We supported social safety net, employment and other work. The central government spent 230.316 billion yuan on the social safety net and employment effort, an increase of 13.7%. To put in place a system of cost of living allowances for rural residents throughout the country, the central government paid out three billion yuan in subsidies to areas with financial difficulties and local governments also increased their spending. It spent 16 billion yuan to support improvements in the system of cost of living allowances for urban residents. It allocated 6.5 billion yuan in subsidies to raise the basic pension benefits for retired enterprise employees. It also granted 1.7 billion yuan in subsidies to increase the allowances for entitled groups and allowed more people to become eligible for these allowances, benefiting over six million people. Subsidies were granted to urban recipients of cost of living allowances as well as junior college and secondary technical school students from poor families who were materially affected by the rises in the prices of pork and other foods. A total of 15 billion yuan was granted in subsidies to industries and groups such as fisheries and taxi drivers that were greatly affected by the increases in the prices of refined oil products. A total of 5.11 billion yuan was allocated to relieve enterprises of their obligation to operate social programs. Twenty billion yuan was spent to subsidize the policy-based closures or bankruptcies of 92 state-owned enterprises (SOEs) and to find new employment for 357,000 of their laid-off employees. Another ten billion yuan in subsidies was allocated to pay long-overdue salaries and wages owed to SOE employees. The central government spent 13.7 billion yuan to provide further aid to residents displaced by large and medium-sized reservoirs. The central government paid out 23.8 billion yuan in subsidies to increase support for employment and reemployment efforts, and it further improved the preferential taxation policy for employment of the jobless, people with physical or mental disabilities, and other special groups.
We supported environmental protection and ecological conservation. The central government allocated 38.37 billion yuan to support implementation of key forestry ecological projects such as protecting virgin forests, reforesting farmland, and controlling the sources of dust storms affecting Beijing and Tianjin and to further improve the policy for funding ecological conservation of forests. This figure includes an additional allocation of 1.12 billion yuan to continue to provide rural households that reforested their land with subsidies after their grain and cost of living allowances expired. The central government also paid 1.58 billion yuan to support the reform of the system of collective forest rights.
We instituted a low-rent housing system. For this purpose, the central government allocated 5.1 billion yuan. This was supplemented by increases in spending by local governments. The central government also formulated accompanying financial measures and methods and clarified tax and fee policies to support the efforts of all localities to set up a sound low-rent housing system in urban areas. We also deepened the reform of the housing system and improved the system for managing matching-fund programs for housing.
We promoted development of cultural programs and the culture industry. We vigorously advanced the reform of the cultural management system and sped up development of the system of public cultural services in rural areas. The primary focus of support was on implementing projects to make the reception of central radio and television programming available to more areas through broadcasting facilities rather than cable, to set up a national shared databank of cultural information and resources, and to show movies in the countryside. All of these projects helped enrich the cultural life of rural residents. We also supported growth of the cartoon and animation sector in China.