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China Needs Decentralised Revenue  

2006-12-07 15:10:13|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Singapore Press HoldingsLtd

Published in LianheZaobao

September 29, 2006

 

China Needs Decentralised Revenue

Wu Muluan (Fuzhou)

As a vast country, China’s revenuearrangement, especially revenue distribution between central andlocal governments, has always been under discussion. In the past,30% of China’s revenue belonged to the central government and therest to local government. However, the allocation scheme wasreversed in 1994 due to a new central and local tax-sharingsystem.

So far, 12 years have past sincethe 1994 amendment. During the past decade, the combination of afinancially powerful central government and weak local governmentshas introduced a lot of negative impacts, such as failures in therestructuring of public utility services and a “high fever” inthe real-estate industry.

Agriculture tax was abolished inJanuary 1st, 2006. Before that, the addition of all kinds of feestogether with this tax, almost led to calamities. Besides differentkinds of fees and an agriculture tax, there are still taxes imposedupon special agricultural and husbandry activities. There used tobe many kinds of tax incentives and offsets, but since 1994agriculture tax has been heavier due to the lack of publicexpenditure at country and village level. Many anonymous fees werecharged, which brought about conflicts between government andfarmers.

A well-known example is that LiCang’ping wrote a frank letter to Premier Zhu--Party CommitteeSecretary of Jianli County Qipan Village in Hubei Province--on thefarmers’ plight, calling for the relief of burden onfarmers.

Unprecedented prosperity in theReal-estate market

After agriculture taxes and feeswere stopped, financial income from below provincial level began tobe diverted to the citizens. Therefore, some people depicted thissituation as government, banks and real-estate companies drivingharvest machines, “reaping” city residents’ grass. However,there seemed to be no alternative after the villages’ grass hadbeen totally “reaped”.

The tax-sharing system since 1994has also resulted in a small “gap” — the land transfer feebelongs to local government, leading to an overly activereal-estate market. Investigations done by the ‘Council DevelopingResearch Center’ show that, land transfer fees make up over 60% oflocal financial extra-budgetary income at present. Under thissystem, local government takes land away from farmers at anextremely low price, such as a few tens of thousands of Yuan peracre. Through auction, this land price is raised dozens evenhundreds of times. On one hand, the local financial situationimproves; on the other hand, corruption happens from time totime.

Taxes and fees relevant toreal-estate businesses have also become a part of local financialincome. Therefore, two years of macro-control can’t put down the“fire” in the real-estate market. A city along the coast declaredin one local housing trade fair that the city government will bemoved to the eastern part of the city. The housing price around theprospective new government center doubled in the days thatfollowed. Ironically, this news is now proven to be just aproposal. People complained a lot about this, but the governmentand the real-estate companies made a fortune from thisrumour.

In the 1990s, the Chinesegovernment explicitly announced the direction of this revolution,which is, realizing the ‘Socialist Market Economy System’. Thisdirection is definitely right, but deviates greatly in practice dueto weak local finances. Many public utility services have beenturned into market-oriented services or are now run by localpeople. During these revolutions, many public-financingresponsibilities were diverted to society. Among which, the medicaland education fields are the most obvious.

Over marketing of public utilityservices has gone into the tap water and gas areas. In theauthor’s opinion, most local governments now simply sell citywater supply utilities and get the transfer money. The risingprices hereafter are totally paid for by citizens and there isn’tany consideration of them, thus bringing about broadcomplaints.

 “Go to Beijing forMoney”

Local governors in the U.S. could choose not to goto Washington DC but Chinese governors could not. Both money andpower are centralized in Beijing. They have to go to Beijing nomatter what for either one of them. Thus, in recent years, almostall provinces (including cities) gradually set up offices inBeijing. The main duty of these offices has been asking for moneyfrom the central government. In tax distribution, the federalgovernment takes most and at the same time a transfer payment is done. However, the rulesgoverning transfer payments are not clear so that policy issubjective and policymakers are very powerful. Hence, “going toBeijing for money” becomes popular.

Some scholars believe thatrevolutionising the relationship between central and localgovernments is a must. The key question is how? Any restructuringof the relationship between central and local governments has toconsolidate federal authority while also continuing to rely onlocal government’s renovation for furtherdevelopment.

China adopted so-called ‘Fiscal Federalism’ before1994, but the direct result of weak central finance was financialdeficits. Central government employees’ salary was broughtfrom a provincial government even once.

Zhu later recalled: “To implementthe tax-sharing system, protests from local government are sostrong that I have to talk, discuss and compromise with oneprovince after another. Finally it is done and I’ve lost 2.5 kg inweight.”

Zhu is titled as “Economic Czar”and the positive effect is: Central government’s financial powerhas been enhanced, thus enabling the central government to do manythings on the waiting list or that should be done. At the sametime, local financial power is handed over while governance is leftto local government, which breaks the balance of finance andgovernance between central and local governments.

Simply put, the situation is, theone who gets most of the money does the least and the one who getsthe least money does most of the governance. The people are thenmade to remedy the latter one’s lack of money and a vicious circleis therefore formed.

Someone who experienced the revolution told me,people who believed in central government finance gradually becamethe mainstream force from 1990. For those who carried out therevolution of the tax-sharing system, worrying about centralfinancial deficit is just an excuse. What they most care about is acentralized economic system and therefore to implementvarious great aspirations, but the direct result of thisis the restriction of local innovation and infringement upon therights of customers.

 

China Senior Journalist

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