In local government budgets, total revenue came to 2.656572 trillion yuan (including income from tax rebates and subsidies granted by the central government), an increase of 415.813 billion yuan or 18.6% over the amount for 2004 when calculated in comparable terms, representing 107.2% of the budgeted figure. This included 1.509204 trillion yuan collected at the local level, an increase of 265.091 billion yuan or 21.3% more than the amount for 2004, representing 107.7% of the budgeted figure. Expenditures in local budgets totaled 2.564624 trillion yuan, a year-on-year increase of 434 billion yuan or 20.4%, which is 103.5% of the budgeted figure. Total expenditures included 2.493239 trillion yuan spent at the local level, an increase of 433.958 billion yuan or 21.1%, representing 104.7% of the budgeted figure, and 71.385 billion yuan turned over to the central government, basically the same as in 2004. Local revenue exceeded expenditures by 91.948 billion yuan and this surplus will be rolled over into the budget for this year. These figures may change a little when the final accounts are prepared.

The overall situation in the implementation of the central government budget and other financial work in 2005 are as follows:

1. Carrying out a prudent fiscal policy and doing a good job in implementing the budget. In early 2005 the central government adjusted its fiscal policy to adapt to the new issues facing China's economic and social development by implementing a prudent fiscal policy with the focus on controlling the deficit, adjusting the pattern of expenditures, promoting reform, and increasing revenue while cutting expenditures. The deficit in the central government budget was 300 billion yuan, 19.2 billion yuan less than that for 2004. Funding for bond-financed projects was reduced by 30 billion yuan and allocations from the central government budget for investment in regular construction projects was increased by 10 billion yuan. In carrying out the fiscal policy, we carefully complied with the requirement to maintain the "five balances" [balancing urban and rural development, development among regions, economic and social development, development of man and nature, and domestic development and opening wider to the outside world, tr.], used a combination of policy measures including taxation, subsidies and transfer payments, and made appropriate adjustments in the distribution and focus of funding for bond-financed projects to strengthen the weak links in economic and social development such as agriculture and ensure funding for key ongoing projects and for items such as agriculture, forestry, water conservancy, education, science, culture, public health, and energy.

On the basis of steady and rapid growth of the Chinese economy, we improved tax collection and management, applied scientific management methods, made a full review of preferential tax policies and standardized them, stringently controlled tax exemptions and reductions and worked hard to collect all taxes due, resulting in a large margin of growth in national revenue. National revenue for 2005 exceeded the 2004 revenue by 523.151 billion yuan, an increase of 19.8%.

Figure 1

Breakdown of the 523.151 Billion Yuan Increase in National Revenue in 2005

It should be noted that the most fundamental factor behind the large increase in total national revenue in 2005 was steady and fast economic growth, but contributing to the increase were also some non-regular factors and the efforts of tax authorities to improve tax collection and management as well. The non-regular factors mainly consist of the following. First, the increase in production and sharp rise in prices of energy and raw materials such as coal, crude oil and nonferrous metals, as well as the rapid growth of the real estate industry resulted in greater collection of VAT and business tax compared to other industries. More than 60 billion yuan of the surplus was unusual in nature. Second, total national corporate income tax collected grew by 38.9% in 2005, higher than the 22.6% growth rate in profits for all large industrial enterprises in the same period. This was mainly because total corporate income tax in 2005 exceeded the previous year's figure by more than 50 billion yuan after final settlement due to the large growth in corporate profits in 2004. When three of China's commercial banks – the Bank of China, the China Construction Bank and the Industrial and Commercial Bank of China, were turned into joint stock companies in 2005, many of their non-performing loans were written off, enhancing the quality of their assets and improving profitability. This greatly improved the balance in their account books, resulting in a year-on-year increase of over 20 billion yuan in the corporate tax they paid in 2005. Third, a large part of the additional revenue was due to the efforts of tax authorities to improve tax collection, management and inspection and clear up overdue taxes. The additional revenue due to the above non-regular factors totaled around 120 billion yuan. Deducting this part of the revenue would result in a growth rate for tax revenue very similar to those for the economy and prices.