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UPDATED: September 24, 2014 NO. 39 SEPTEMBER 25, 2014
Overhauling the Budget System
A revised budget law aims to address the most worrying loopholes in China's public fund management
By Li Li


China's top legislature has adopted a long-awaited amendment to the Budget Law, which will put more stringent legal constraints on government income and spending. The move, according to fiscal scholars, is set to have far-reaching effects on the country's fiscal balance and health. The new law will take effect on January 1, 2015.

The Budget Law has been informally dubbed the "Economic Constitution" worldwide. The recent revision will most likely prove to be a milestone in China's fiscal history, as it will make the government's distribution of fiscal funds more legally based and transparent.

The current Budget Law became effective in 1995. As the law is closely interrelated with China's ongoing fiscal reform, it took the country an uncharacteristically long time to revise it—seven years to draft a bill for the first reading in 2011 and a total of four readings to get it passed on August 31 by the Standing Committee of the National People's Congress (NPC).

In past decades, the country's revenues and spending were divided into budgetary and extra-budgetary. Under such a dual-structure budgetary regime, some government departments enjoyed a great amount of leeway in managing public funds, which possibly led to corruption and the abuse of taxpayers' money.

The revised law requires fiscal funds of all types to be subject to a unified budgetary system and stipulates that detailed budget information, including that of the Central Government and local authorities, as well as departments under them, must be publicized for public scrutiny.

Previously, budget information provided by some government departments was often too vague for legislators and the public to effectively supervise the management of fiscal funds. For example, during the annual NPC sessions, many deputies complained that some ministries only provided overall figures of their spending instead of detailed breakdowns, which made it virtually impossible for them to fulfill their supervisory role.

In 2014, China's total fiscal revenue is budgeted to be 13.9 trillion yuan ($2.26 trillion) and government spending to be more than 15 trillion yuan ($2.44 trillion).

The management of such a huge amount of public funds and supervision of its use remain key challenges.

The revision of the Budget Law represents a huge step forward in furthering fiscal reform and establishing a modern fiscal system, said Zhang Dejiang, Chairman of the NPC Standing Committee.

"The revision process took such a long time because a number of controversies concerning the direction of fiscal reform had not been settled then," said Professor Liu Jianwen at Peking University's Law School. "If the ongoing reform had not been acknowledged by legislation, some new measures would have been held back."

During the lengthy process of revising the Budget Law and in between the four readings, feedback from fiscal scholars regarding the successive amendment drafts was solicited. Their opinions, which focused on keeping the power of government departments in check and increasing fiscal transparency, have been largely reflected in the final version.

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