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People's Daily Online>>China Business

Local governments 'need adequate funding'

By Zheng Yangpeng  (China Daily)

09:18, February 28, 2012

BEIJING - China must ensure that local governments have the fiscal capacity to meet their spending commitments, while it also must contain the growth of government expenditures, a report jointly issued by World Bank and the Development Research Center of the State Council said.

"Local governments are responsible for 80 percent of government expenditure responsibilities but receive only slightly more than 40 percent of tax revenues as transfers from the central government," the report issued on Monday said.

It said that there should be a link between fiscal capacity and spending responsibilities.

China's fiscal revenue hit a record 10.37 trillion yuan ($1.64 trillion) in 2011, up 25 percent year-on-year, according to the Ministry of Finance.

Fiscal revenue includes taxes as well as fees, penalties and other items.

Fiscal revenue grew faster last year than the overall economy, which expanded 9.2 percent. The contrast aroused public concern about the surge in government income and the high tax burdens faced by individuals and companies.

Xie Xuren, the finance minister, has said that the ratio of fiscal revenue to GDP and the level of per capita fiscal capacity (the ability to generate revenue) were low by international standards.

China's fiscal revenue was equivalent to 22 percent of GDP in 2011, calculated using officially released figures for fiscal revenue and GDP. The ratio in 2010 was 20.9 percent.

Scholars said the report's suggestions came at an opportune time, as local governments faced a grim fiscal situation because of central government property curbs.

"China's local governments have relied on land transfer fees more and more heavily since the fiscal system reform in the mid-1990s," Huo Deming, a professor at the China Center for Economic Research of Peking University, said.

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