Public scrutiny of China’s government budget process is easier than ever. But there are good reasons for more transparency.
By Hu Shuli 18 March 2009
Deliberations over the government budget process attracted a lot of attention at the recently concluded National People’s Congress in Beijing. Calls for transparency in public financing were louder than ever at the annual conference, and the public cheered when some NPC delegates compiled transparency ratings and ranked the financial openness of governments in 31 provinces. Given the importance of government finance in the current global economic downturn, these were gratifying developments.
The government budget submitted to NPC this year is proof of the progress already made in the arena of public disclosure. Containing 19,000 characters of information, the report was more than twice the length of the disclosed government budget for the financial crisis year 1999. The latest report’s glossary and graphics made it easier to understand than in past years. Spending columns were more detailed and, even more importantly, the number of ministries and departments (including the People’s Bank of China) sending budgets for the record of NPC rose to 95 this year from 51 in 1999, accounting for more than half of the 168 government divisions.
Another bright spot this year was that, for the first time, the central government budget delineated income and spending tied to all large funds – including land transfer funds -- controlled by the central and local governments. In the past, land transfers were treated as supplementary budget items and managed in separate “land accounts.” This lack of transparency opened doors to all sorts of abuse. Moreover, local governments were not required to submit such budgets to the NPC for deliberation.
Changes began with a reform policy enacted in 2007. Since then, land-transfer income has been listed as local government income and managed through the budget process. It’s the kind of budget information that’s useful for policymakers who analyze local government revenue sources and spending targets. And this year, land income was made part of the open-to-the-public budget discussions at NPC meetings.
NPC delegates learned the income for funds controlled by all local governments topped 1.31 trillion yuan last year, representing one-fourth of all tax-based revenues. Land transfer payments and land-use compensation totalled 1.03 trillion yuan, or 79 percent of the income for government funds, highlighting the importance of land revenues and corroborating estimates made by academics who, for years, were among the only public sources of budget data.
In the past, many analysts assumed local governments used land income for construction projects and general spending. Actual figures show local governments spent these revenues on a variety of programs, and rarely for general administration. Some 37 percent of the money was used for requisitions, compensation and relocations of residents. Local governments allocated 15.3 percent of these revenues to assist former employees of bankrupt, state-owned enterprises, 12.6 percent for land development and farmland protection, 3.6 percent for rural area infrastructure and farming subsidies, and 1.4 percent for low-income housing. Only 29.8 percent was spent on urban construction.
This progress toward transparency in government budget reporting is encouraging. But we have to admit there’s room for improvement. While NPC delegates and the public now know all about last year’s budget and next year’s budget draft, they still do not have the whole picture.
For example, the main budget report and glossary cover a mere 63 pages. Information about central government ministries is sketchy. By comparison, the budget for the city of Jiaozuo in Henan Province totals 1,200 pages in eight volumes, with graphs, tables and pages of text exceeding 1 million characters. A central government budget should be even more voluminous and complete. Based on requirements for reports from 94 government departments and the central bank, NPC delegates should receive close to 100 volumes. But much data was released only “internally,” regrettably shielding it from delegates and the public.
We would argue that giving the public an opportunity to read and understand the completed budget is important. It’s also feasible. And further steps toward disclosure would build on a decade of progress marked by public finance reforms that now force budget writers to categorize revenues and spending. Budgets built within this framework are quite clear and easy to analyze.
Back in 2000, NPC was to receive budgets from four ministries -- education, agriculture, science and technology, as well as labour and social welfare. The figures were simple then, based on rough categorization methods typical for the planned economy. In 2007, after numerous experiments, China formally separated government revenues and expenditures, abandoning the old categories and adopting a new framework for public finance. Formalization has continued over the past two years. And although the initial plan to follow a dual-track budgeting system based on spending “functions” and “economics” has not been realized, the government at least has a more up-to-date process for budget-making.
The 2009 budget submitted to NPC by the Ministry of Finance was divided into income and spending categories. It is now possible to track income sources and totals, as well as the structure, direction and purpose of each expense, and follow the activities of each department along with where the money went. If this kind of complete budget information is made public, not only will NPC delegates be able to check details, but the public can exercise oversight in its implementation as well.
We’re pleased by the public finance reforms adopted so far in many areas of the government budget. Now it’s high time to expand the reform agenda to include complete disclosure of the budget procedure. After all, transparency should be the precise intent of any budget process.
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Shine More Light on Government Budgets
Public scrutiny of China’s government budget process is easier than ever. But there are good reasons for more transparency.
By Hu Shuli
18 March 2009
Deliberations over the government budget process attracted a lot of attention at the recently concluded National People’s Congress in Beijing. Calls for transparency in public financing were louder than ever at the annual conference, and the public cheered when some NPC delegates compiled transparency ratings and ranked the financial openness of governments in 31 provinces. Given the importance of government finance in the current global economic downturn, these were gratifying developments.
The government budget submitted to NPC this year is proof of the progress already made in the arena of public disclosure. Containing 19,000 characters of information, the report was more than twice the length of the disclosed government budget for the financial crisis year 1999. The latest report’s glossary and graphics made it easier to understand than in past years. Spending columns were more detailed and, even more importantly, the number of ministries and departments (including the People’s Bank of China) sending budgets for the record of NPC rose to 95 this year from 51 in 1999, accounting for more than half of the 168 government divisions.
Another bright spot this year was that, for the first time, the central government budget delineated income and spending tied to all large funds – including land transfer funds -- controlled by the central and local governments. In the past, land transfers were treated as supplementary budget items and managed in separate “land accounts.” This lack of transparency opened doors to all sorts of abuse. Moreover, local governments were not required to submit such budgets to the NPC for deliberation.
Changes began with a reform policy enacted in 2007. Since then, land-transfer income has been listed as local government income and managed through the budget process. It’s the kind of budget information that’s useful for policymakers who analyze local government revenue sources and spending targets. And this year, land income was made part of the open-to-the-public budget discussions at NPC meetings.
NPC delegates learned the income for funds controlled by all local governments topped 1.31 trillion yuan last year, representing one-fourth of all tax-based revenues. Land transfer payments and land-use compensation totalled 1.03 trillion yuan, or 79 percent of the income for government funds, highlighting the importance of land revenues and corroborating estimates made by academics who, for years, were among the only public sources of budget data.
In the past, many analysts assumed local governments used land income for construction projects and general spending. Actual figures show local governments spent these revenues on a variety of programs, and rarely for general administration. Some 37 percent of the money was used for requisitions, compensation and relocations of residents. Local governments allocated 15.3 percent of these revenues to assist former employees of bankrupt, state-owned enterprises, 12.6 percent for land development and farmland protection, 3.6 percent for rural area infrastructure and farming subsidies, and 1.4 percent for low-income housing. Only 29.8 percent was spent on urban construction.
This progress toward transparency in government budget reporting is encouraging. But we have to admit there’s room for improvement. While NPC delegates and the public now know all about last year’s budget and next year’s budget draft, they still do not have the whole picture.
For example, the main budget report and glossary cover a mere 63 pages. Information about central government ministries is sketchy. By comparison, the budget for the city of Jiaozuo in Henan Province totals 1,200 pages in eight volumes, with graphs, tables and pages of text exceeding 1 million characters. A central government budget should be even more voluminous and complete. Based on requirements for reports from 94 government departments and the central bank, NPC delegates should receive close to 100 volumes. But much data was released only “internally,” regrettably shielding it from delegates and the public.
We would argue that giving the public an opportunity to read and understand the completed budget is important. It’s also feasible. And further steps toward disclosure would build on a decade of progress marked by public finance reforms that now force budget writers to categorize revenues and spending. Budgets built within this framework are quite clear and easy to analyze.
Back in 2000, NPC was to receive budgets from four ministries -- education, agriculture, science and technology, as well as labour and social welfare. The figures were simple then, based on rough categorization methods typical for the planned economy. In 2007, after numerous experiments, China formally separated government revenues and expenditures, abandoning the old categories and adopting a new framework for public finance. Formalization has continued over the past two years. And although the initial plan to follow a dual-track budgeting system based on spending “functions” and “economics” has not been realized, the government at least has a more up-to-date process for budget-making.
The 2009 budget submitted to NPC by the Ministry of Finance was divided into income and spending categories. It is now possible to track income sources and totals, as well as the structure, direction and purpose of each expense, and follow the activities of each department along with where the money went. If this kind of complete budget information is made public, not only will NPC delegates be able to check details, but the public can exercise oversight in its implementation as well.
We’re pleased by the public finance reforms adopted so far in many areas of the government budget. Now it’s high time to expand the reform agenda to include complete disclosure of the budget procedure. After all, transparency should be the precise intent of any budget process.
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