Review of Public Budgeting Reform in Minhang

Abstract

Shanghai’s Minhang District, which is a success story of public budgeting reform in China, has made unprecedented breakthroughs in budgetary preparation, examination, execution, and supervision. Though a relative newcomer to the area of reform, Minhang District has demonstrated advantages in its reform concept, institutional design, standardization, and influence. Of course, to accurately understand the nature and significance of Minhang’s public budget reform, we should not consider the reform independently. Instead, we need to consider it in the overall context of Chinese political system reform, identify the general patterns of Chinese reform, and then identify the unique characteristics of Minhang’s reform.

Appendix: Proposal for Budget Statement System Reform

The budget statement system is composed of two parts: background documents and basic statements (all statements in the proposal are prepared by the research group).

1 Background Documents

• 1. About the budget statement system

This is an introduction to the budget documents and statements, including data sources, budget preparation organs, participatory process, and other information.

• 2. A general scenario of social development for the current budget year

A comprehensive social development indicator system is used to demonstrate the general trend of social development and the problems to be solved in 3 years and to provide basic data for budget review. (The data is provided by the local Reform and Development Commission.) (Table 6.1)

Table 6.1 Social development in Minhang District over a 3-year period (sample)

The actual design in light of the local reality may cover the following indices:

• (a) Production factors and living conditions: population, natural resources, labor, basic production assets, liquid assets, consumption goods, and material reserve.

• (b) Social production: the real output or actual workload, total output value, and net output value of the five material production sectors of agriculture, manufacturing, construction, transportation, and commerce.

• (c) Primary distribution and redistribution of national income: the former includes salary in the production departments and profits and tax and other social net income; the latter includes revenue and expenditure of state finance departments, financial institutions, and nonproduction departments.

• (d) Ultimate national income use: the indicator system refers to national income that through distribution and redistribution come consumption funds for the purchase of goods and accumulation funds. Consumption funds can be further divided into individual consumer funds and social collective consumption funds. Accumulation funds can be divided into productive accumulation funds and nonproductive accumulation funds.

• (e) Social commodity circulation and consumption: including transport and exchange and commodities which are used for compensation of raw materials, fuel consumption, fixed assets repair and renewal, fixed assets and current assets required for expanded reproduction, growth of nonproductive fixed assets and current assets, material reserve expansion, individual consumption and social collective consumption, export, and other purposes.

• (f) People’s life: food, clothing, housing, and other daily consumption, education, science, cultural activities, sports, and health.

• (g) Social security: incidence of public order or criminal cases, their filing rate, clearance rate, and people’s sense of security.

• (h) People’s satisfaction with the judicial system: including retrial application rate, total number of petition cases, non-litigation settlement ratio of social disputes, etc.

• (i) Environment protection: control of the total amount of main pollutant discharge, industrial pollution prevention and control, city environment protection, ecological environment protection, and others.

• 3. Government plan for the next 3 (or 5) years and policy guidelines for the current budgetary year

The government plan and guidelines must embody the priorities of social development that are listed in the policy agenda or attract the most attention from the point of view of People’s Congress budget supervision and the public. Projects are itemized to describe the development targets, funds financing, and allocation.

The projects cover such areas as economic development, environmental protection, public safety, education development, employment aid, social security, medical and health, housing construction, etc.

The budget guidelines shall be jointly drafted by the Party committee, the People’s Congress, and the local government and be issued through the Standing Committee of the People’s Congress to the government before budget preparation.

• 4. Key points in the 2010 budget

The key points of the 2010 budget include total revenue and expenditure projection in the 2010 budget, major adjustments in 2009 to the previous year budget, projection of major factors influencing 2010 fiscal revenue and expenditure, and other information that should be disclosed by the government and be included in the budget guidelines.

1 Basic Statements

• 1. Budget balance sheet

This statement provides a picture of the expected budget revenues and expenses, the balance, and changes over the past couple of years, so that People’s Congress delegates can understand the overall situation of the budget of the government at the corresponding level and its balance and development trend (Table 6.2).

Table 6.2 Budget balance sheet

• 2. General budget revenue statement

This statement provides a picture of the total general budgetary revenue and its composition over a certain budget period and the actual scenario of the general budgetary revenues for 2 years before the budget period. Grants of subsidies from governments at higher levels are listed in Table 6.2, and receipts from government funds and state-owned capital management are specifically listed, so they will not be included in this table (Table 6.3).

Table 6.3 General budget revenue statement

• 3. Statements for financial expenditure functions of the budget at the corresponding level and the statutory growth of undertakings in education, agriculture, and science

The statement is prepared for budget items of expenditure functions for a period of the most recent 3 years. It provides a picture of the distribution of government financial resources in different undertakings and uses, so that People’s Congress delegates can understand the allocation of financial resources in fulfilling the functions and policy targets of the government (Table 6.4).

Table 6.4 Table for financial expenditure functions of the budget at the corresponding level

This statement is specially prepared in order to facilitate the examination and supervision by People’s Congress delegates of the statutory budget growth, because the Education Law and other state laws have clearly stipulated that government expenditures in the development of undertakings in education, agriculture, and science must maintain a certain growth rate. By nature, Table 6.5 belongs to the functional categorization of the budget, so its items for the three statutory growth projects are the same as those of education, agriculture, and science in the above table. Before the government revenue and expenditure classification reform in 2007, expenditure scope of the statutory growth covers only the operating expenses of education, science, and agriculture; but after the reform, its coverage, in addition to those original operating expenses, now extends to expenditures in capital construction, administration, foreign affairs, and others. For the sake of policy continuity and convenient operation, the Ministry of Finance, after the approval of the State Council, stipulated that, despite the reform in distribution of statutory expenditure growth in education, agriculture, and science, examination should be conducted using the old approach to coverage. Therefore, items in Table 6.4 and Table 6.5 are the same, but they (say, education and science) have different approaches to budget calculation. It is advised that these two tables should be integrated and Table 6.5 deleted and explanations be made about the three statutory growth projects in the “Remarks” column (Table 6.5).

Table 6.5 Brief statement for the three statutory expenditure growth projects

• 4. Statement for economic classification of financial expenditure budget at the corresponding level

The statement is prepared for economic classification items for a period of the most recent 3 years. It provides a picture of the distribution of government financial expenditures between different economic activities and uses, so that People’s Congress delegates can understand the economic purposes of government spending (Table 6.6).

Table 6.6 Economic classification statement for financial expenditure budget of the government at the corresponding level

• 5. Itemized statements for department expenditure at the corresponding level

The statements provide a list of government departments’ budget expenditures at the corresponding level, and a selected list of the important items of basic expenditures and project expenditures, to provide useful information for budget examination supervision by People’s Congress delegates. There are altogether three statements covering three levels: one for total budget expenditure of state organs at the corresponding level, one for budget expenditure of various departments (in the case of government), and another for budget expenditure of subordinate units (in the case of the Education Bureau).

The statements provide a picture of budget expenditures of state organs on different items, so People’s Congress delegates can understand the total expenditure and itemized expenditure of state organs for the previous 3 years (Table 6.7).

Table 6.7 Statement for total budget expenditure of state organs

1 Notes on Budget Items

• 1. Basic expenditure

  Basic expenditure, which is composed of personnel expenditure and expenditure for daily operation, reflects the efforts of administrative institutions to maintain normal operations and fulfill routine responsibilities. Without legal procedures to increase staffing or increase wages, the annual budget for basic expenditure should remain relatively stable. The budget units should report to the People’s Congress on the reasons and necessity for any large increase in the basic expenditure budget.

  • 1. Personnel expenditure: this includes regular wages, subsidies, allowances, bonuses, welfare (including social security, medicare, housing subsidies), and other expenditures on civil servants.

  • 2. Expenditure for daily operation: this includes office expenses, printing expenses, postage and telephone fees, expenditure on information system maintenance, transportation, vehicles, trips, official entertainment, public utilities, property management, daily maintenance, and other costs of state organs.

• 2. Recurrent project expenditure

  This reflects the situation of annually occurring budget expenditure when the administrative institutions perform their statutory functions and complete their tasks. The budget units should make reports to People’s Congress delegates on whether the projects are in line with the priorities of their departments and whether they have reached the requirements of economy, efficiency, and fairness.

  • 1. Special services: this refers to expenditure by administrative institutions to complete work tasks within their responsibilities, such as meetings and training, scientific research and planning, publicity and propaganda, and relevant activities (say, advertising, promotional material printing, press conferences, and others).

  • 2. Purchase of goods and services: this includes the purchase of office furniture and equipment, special materials, tools and instruments, equipment, and other large-scale goods, as well as payment for services and expert consultation.

  • 3. Public payment: this refers to payment for social service projects, such as social security costs, disaster relief, and others.

• 3. Nonrecurrent items’ expenditure

  These are one-time projects administrative institutions undertake to fulfill specific administrative tasks and development goals, such as repair and renovation. In contrast to the recurrent project expenditure, these projects are subject to the examination of People’s Congress delegates to see whether they are relevant to the objectives, transparent, and legal, and the budget units should make reports on whether these projects are up to the requirements of economy, efficiency, efficacy, and fairness.

  • 1. Capital construction and renovation: the administrative institutions should conform to the state provisions on the management of basic construction, include capital construction and renovation projects in the fixed asset investment plan, and incorporate them into project expenditure of the department budget, when constructing and renovating office buildings, conference centers, and other government investment construction projects.

  • 2. Special purchases: information system construction and upgrading of administrative departments in accordance with relevant regulations, vehicle purchase, and others.

  • 3. Festive activities: including large-scale conferences, celebrations, sports events, expositions, and others. It reflects budget expenditure on different projects of departments subordinate to state organs (Tables 6.8 and 6.9).

    Table 6.8 Statement for department budget expenditures (in the case of government)

    Table 6.9 Statement for budget expenditure of units subordinate to government departments (in the case of Education Bureau)

In addition to routine work and operation, every department has its own development projects, which are related to the policies and tasks of the government for a certain year or period. Of these projects, those occurring annually for a unit belong to the category of recurrent projects in the above statement; occasional but particularly important projects belong to the category of major and special activities of nonrecurrent projects. For such special and important projects, more detailed description and explanation should be made on the source and use of budget funds to facilitate examination (Table 6.10).

Table 6.10 Specific project budget expenditure statement (Shanghai Minhang District education development project 2008 example)

• 6. Social security budget statement of government at the corresponding level

  This statement lists the revenues and expenditures of various social security items, in order to help People’s Congress delegates examine and supervise the distribution of social security funds.

• 7. Government funding budget statement at the corresponding level

  This statement provides a picture of government funding revenues and expenses at the corresponding level, in order to facilitate People’s Congress delegates’ understanding of the sources and use of government funds (Table 6.11).

  Table 6.11 Government funds budget statement at the corresponding level

• 8. Budget statement of government debt revenue and expenditure

  Although the current budget law stipulates that local governments must maintain balanced finances and may not raise funds in the form of loans, the reality is that local governments, with few exceptions, do have loans in various forms. Government debts should be fully reflected in the budget so as to strengthen the scientific management of government debts and effectively prevent the risk of a debt crisis. The government debt budget provides a picture of the current state of debt revenues and expenditures, which government departments or public institutions at different levels raise in the name of a government or unit and in the form of loans or guarantees and for which they have direct or indirect liability for compensation (Table 6.12).

  Table 6.12 Budget statement of government liabilities

• 9. Budget table of state-owned capital management (table omitted).

• 10. Others (provided in light of the review or financial management needs of the People’s Congress) (tables omitted).

• 11. Itemized statements (those itemized department or project budget statements prepared by the finance department. Printed statements are no longer handed out to delegates on request, but they do have easy access to the budget information in electronic form on the Internet when necessary).

  Moreover, it is suggested that the budget should be incrementally made open to the public after its approval by the People’s Congress. At the same time, the government should also prepare a brief annual synopsis of the budgets with tables and illustrations, which should be concise and easy to understand. The synopsis should consist of its financial revenue and expenditure situation, major work objectives, and relevant fiscal policies for the year. There must also be tables to illustrate changes in budgetary revenue and expenditure, main sources of income, and major expenditures. The synopsis should be available in electronic form through the government website and in paper form printed in color, so as to improve transparency of the budget.