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Implementation of the Central and Local Budgets for 2003

The year 2003 was an unusual year. In the face of a complex and volatile international situation, the unexpected outbreak of the severe acute respiratory syndrome (SARS) and frequent natural disasters, the Party Central Committee and the State Council responded confidently with resolute decisions. All local authorities and government departments worked hard with one heart and one mind to conscientiously implement the principles and policies formulated by the central authorities and meet the requirements for financial and economic work set at the First Session of the Tenth National People's Congress (NPC). There was continued good momentum in economic and social development and the central and local budgets were implemented fairly well.

National revenue exceeded 2 trillion yuan in 2003 for the first time to reach 2.1691 trillion yuan (excluding revenue from generation of debt, both here and below). This was 278.7 billion yuan or 14.7% more than the previous year and 105.8% of the budgeted figure. National expenditures totaled 2.4607 trillion yuan, an increase of 255.4 billion yuan or 11.6% year-on-year and 103.8% of the budgeted figure. Expenditures exceeded revenue by 291.6 billion yuan. Total revenue in the central budget amounted to 1.2465 trillion yuan (after allowing for the additional 82.9 billion yuan used in export tax rebates), up 109.3 billion yuan or 9.6% over the previous year and 104.4% of the budgeted figure. Total expenditures in the central budget came to 1.5663 trillion yuan (including 824 billion yuan in tax rebates and subsidies for local authorities), 119.5 billion yuan or 8.3% more than the previous year and 103.5% of the budgeted figure. The deficit in the central budget was held to 319.8 billion yuan as approved at the First Session of the Tenth NPC. Total revenue in local budgets amounted to 1.8082 trillion yuan (including tax rebates and subsidies granted by the central government), an increase of 221.5 billion yuan or 14% year-on-year and 105.7% of the budgeted figure. Total expenditures in local budgets came to 1.78 trillion yuan (including 61.5 billion yuan turned over to the central government), 188 billion yuan or 11.8% more than the previous year and 104.1% of the budgeted figure. Local revenue exceeded expenditures by 28.2 billion yuan which was to be used in the following year.

These figures may change a little when the consolidated final accounts are made.

The main characteristics of the implementation of the central budget and the financial work in 2003 are as follows.

1. Revenue continued to grow fairly fast. The national economy got off to a good start in 2003, but was later affected by the SARS outbreak and natural disasters such as droughts, floods and earthquakes. Economic growth slowed down for some time and a rather large drop in revenue growth occurred in the second quarter. In response to these changes, authorities of finance and tax and the Customs at all levels energetically implemented the principle set by the Party Central Committee and the State Council that called for unrelenting efforts to prevent and control SARS while unswervingly promoting economic development. They promptly tightened revenue supervision and regulation and strengthened tax collection and management in accordance with the law. Thanks to a rapid recovery and development of the national economy, national revenue growth maintained a good momentum. First, there was strong growth in domestic demand and imports, which resulted in the following year-on-year revenue increase: domestic value-added tax (VAT) increased by 105.4 billion yuan or 17.1%; consumption tax, by 13.4 billion yuan or 12.8%; business tax, by 39.2 billion yuan or 16%; and import duties, by 111.1 billion yuan or 42.9%. Second, the quality of economic growth was raised and the economic performance of enterprises noticeably improved. Corporate income tax rose by 39.9 billion yuan, or 15.9% over the previous year when calculated in comparable terms. Third, personal incomes continued to grow, leading to a year-on-year increase of 20.5 billion yuan or 16.9% in individual income tax, and 11.9 billion yuan or 34.2% in vehicle purchase tax.

Total central government revenue in 2003 exceeded the projected figure by 52.4 billion yuan (after allowing for an additional 82.9 billion yuan used in export tax rebates during the implementation of the budget). This surplus included 7.8 billion yuan from increased vehicle purchase tax, which was incorporated into the calculation of revenue and expenditures in the central budget and was funded for special purposes according to the relevant regulations. Another 7.8 billion yuan was used to increase tax rebates and general transfer payments to local governments in accordance with the relevant institutional rules. The final 36.8 billion yuan was used during the year mainly for combating disasters and providing disaster relief, developing education, health, and science and technology, supporting enterprise reforms, improving social security, and upgrading the ecological environment. The State Council has reported all this to the NPC Standing Committee. The revenue in excess of the projected figures in local budgets was used by local authorities mainly to increase expenditures for education, science and technology, culture and health and to pay overdue wages and salaries.

2. Finance played a greater role in macro-control and in safeguarding the economy. The government continued to follow the proactive fiscal policy to promote sustained and rapid growth of the national economy. Treasury bonds issued to finance projects totaled 140 billion yuan. While exercising strict management over these funds, we improved the orientation and structure of their use by giving preference to rural areas, economic restructuring, the central and western regions, science and technology, education, improvement of the ecological environment and public health services. Transfer payments were increased to promote balanced development among different regions. General transfer payments from the central budget to local governments in 2003 totaled 191.2 billion yuan, 17.9% more than the previous year. Special transfer payments earmarked for social security, agriculture, science and technology, education, health and poverty alleviation amounted to 257.7 billion yuan, up 7.3% year-on-year. In response to the State Council's directive to improve fiscal systems at and below the provincial level, local governments continued to strengthen the abilities of primary-level financial authorities to provide adequate financial resources. To appropriately increase the incomes of employees in government departments and institutions, we steadily implemented the policy of adjusting the wages and salaries of their employees and the pensions of their retirees.

The central authorities showed great concern for people's lives and enterprises' production and operations following the outbreak of SARS. First, 2 billion yuan was appropriated from the central budget to set up the Anti-SARS Fund, and a policy was clearly stipulated to provide free SARS treatment for rural and impoverished urban patients. This played a vital role in effectively curbing the spread of the outbreak, particularly to the countryside. Financial authorities at all levels allocated a total of 13.6 billion yuan for SARS prevention and treatment, including 2.8 billion yuan from the central budget. The central government appropriated an additional 1 billion yuan to improve the public health system in the second half of the year. Second, we promptly introduced a range of preferential fiscal and tax policies to aid industries hard hit by the SARS outbreak, such as tourism, food and beverage service, civil aviation, railways, hotels and taxis, so that they could tide over difficulties to resume normal operations as soon as possible. Although the above-mentioned measures increased expenditures and reduced revenue, they protected the health of the people, ensured the normal operations of enterprises and promoted economic and social development.

3. New steps were taken to solve the problems facing agriculture, rural areas and farmers. First, overall progress was made in the trial reform of rural taxes and administrative charges. The trial was extended from 20 provinces to the whole country, reducing the burden on farmers by over 30% on average. The central government earmarked a total of 30.5 billion yuan in 2003 to support this reform. Financial authorities at provincial level, as well as those at the city and county levels with adequate resources, also provided some funds to support the reform. Second, we accelerated the pace of repealing the tax on special agricultural products on a trial basis. The tax was by and large rescinded in a dozen provinces and municipalities directly under the central government, including Beijing, Fujian, Guangdong, Jiangsu, Zhejiang, Anhui, Sichuan, Henan, Shanghai and Tianjin. Third, the trial of providing subsidies directly to grain producers was implemented in the provinces of Anhui, Jilin, Hunan, Hubei, Henan, Liaoning, Hebei and Jiangxi and in the Inner Mongolia Autonomous Region. The trial promoted the reform of grain enterprises, and also won the heartfelt support of farmers in trial areas and boosted their enthusiasm for grain production. Fourth, we implemented the policies of reducing or exempting agricultural taxes for crop failures due to natural disasters and of compensating areas designated for flood storage and retention. Funds were promptly appropriated to combat natural disasters and provide disaster relief. The central government allocated 10.8 billion yuan in 2003 to help various localities combat natural disasters, provide disaster relief and fund reconstruction after disasters, and 167 million people in disaster-afflicted areas received timely government relief. Fifth, we vigorously pressed forward with agricultural restructuring to help farmers increase their incomes. In 2003, the central government allocated 44 billion yuan, a year-on-year increase of 13.9%, to support progress in agricultural science and technology, develop the quality and safety system for agricultural products, fund comprehensive agricultural development and promote development-oriented programs for alleviating rural poverty. Sixth, the central government increased expenditures by 6.7 billion yuan on education, health and culture. They mainly went to rural areas to promote the development of social undertakings there.

4. More support was provided for work related to employment and social security. First, greater support was given to work related to employment and reemployment. The scope and duration of preferential fiscal and tax policies to increase reemployment were extended, and laid-off workers who were reemployed were exempted from 17 administrative and institutional charges. A special fund of 4.7 billion yuan was established in the central budget for transfer payments to support reemployment programs, which resulted in the targets for employment and reemployment being exceeded. Second, efforts were stepped up to ensure that living allowances for workers laid off from state-owned enterprises and basic old-age pensions for retirees from the same enterprises are both paid on time and in full and that low-income urban residents receive their subsistence allowances. The central government allotted 60.8 billion yuan to guarantee the payment of living allowances and basic old-age pensions, 13.1% more than the previous year, and 9.2 billion yuan to help pay subsistence allowances, double the sum for 2002. These measures basically ensured that workers laid off or retired from state-owned enterprises received their living allowances or basic old-age pensions on time and in full and enabled 22.35 million low-income urban residents to receive subsistence allowances from the government. Third, more work was done to help some people with special difficulties overcome problems in their production and lives. The central government began making annual allocation of 1.5 billion yuan in 2003 for a special fund to help local authorities solve problems in people's lives, especially ex-serviceman working in some enterprises. We again raised the allowances for those entitled to special government care and preferential treatment. Fourth, we solved the longstanding problem of obligating relevant authorities to provide old-age insurance for employees of land reclamation enterprises. For this purpose, the central government allocated 730 million yuan in subsidies to the central and western regions and the land reclamation zones under its jurisdiction (it will allocate the same amount for the same purpose in 2004).

5. Investment in social undertakings increased significantly. A total of 85.5 billion yuan was spent from the central budget on education, health, science and technology, culture and sports, 9.4 billion yuan or 12.4% more than the previous year. This solved a number of outstanding problems in the development of social undertakings. A special investment of 2 billion yuan was made to continue the renovation of dangerous primary and secondary school buildings in rural areas. We will continue working hard to basically eliminate this problem in around three years. We energetically supported the reforms of the basic medical insurance system for urban employees, the systems for medical care and health service and for pharmaceutical production and distribution. We strongly supported improvement of the disease prevention and control networks and medical treatment systems for public health emergencies at the provincial, prefectural and county levels, and also strongly supported the pilot programs to set up a new type of rural cooperative medical care and health service system in the central and western regions. More was invested in key areas and projects of science and technology. Two billion yuan was allocated for the State Natural Sciences Fund, 800 million yuan for key state basic research programs, 4.5 billion yuan for the state's March 1986 Hi-tech Program, and 3.3 billion yuan for the knowledge innovation pilot program of the Chinese Academy of Sciences. These efforts produced a large number of major scientific advances and promoted the development of science and technology. The program to send books to the countryside, national programs to share cultural information and produce fine stage productions and other cultural programs were launched. A special fund was set up to ensure medical care and health service and other benefits for veteran athletes and coaches. All this promoted the development of culture and sports.

6. The plan for reforming the export tax rebate mechanism was smoothly introduced. The Ministry of Finance worked with commerce, taxation and other government departments concerned to study the problem of unpaid export tax rebates in 2003, and proposed reasonable, effective measures to tackle the problem at its root. The Party Central Committee and the State Council resolutely formulated the principle of "preventing new arrears, clearing up old arrears, improving the mechanism, sharing the financial burden, accelerating reform and intensifying development" to reform the export tax rebate mechanism. They adopted five clear-cut policies in this regard. First, we will restructure export rebate rates, retaining some of them while lowering others, with an average reduction of around 3 percentage points. Second, total export tax rebates verified for 2003 will be taken as the base figure, and payment for the portion of export tax rebates that exceed the base figure, if any, will be shared by the central and local governments at a ratio of 75:25 beginning in 2004. Third, any increase in the VAT and consumption tax on imports collected by the central government will be used first to pay export tax rebates. Fourth, the central government will pay the full sum of the aggregate arrears in export tax rebates due to enterprises before the end of 2003. Fifth, the reform of the foreign trade system will be accelerated. The portion of the VAT and consumption tax on imports collected by the central government in 2003 that exceeded the pre-set targets, totaling 82.9 billion yuan, has all been used to pay export tax rebates.

7. Reform of the budget management system was further deepened. First, we continued to deepen the reform to separate the management of revenue from the management of expenditures. We brought 118 administrative charges collected by 30 government departments and institutions, which included the former Ministry of Foreign Trade and Economic Cooperation and the Ministry of Personnel, under budgetary control. Second, the reform was further deepened to introduce departmental budgets by requiring more departments to submit increasingly standardized budgets to the NPC. Trial reforms to set the level of basic expenditures and fix the allowed number of employees and funding were extended to 118 more secondary institutions under the central government. Third, we intensified the reform to introduce the system of centralized treasury revenue and payments, expanding the trial implementation of the system of centralized treasury payments from the 42 central departments of 2002 to 82 in 2003. Fourth, the scope of government procurement continued to expand, with total government procurement exceeding 150 billion yuan in 2003, 50 billion yuan more than the previous year. Fifth, we further tightened the supervision and auditing of budgetary funds and funds amounting to 61.2 billion yuan were verified in 2003 as being obtained through acts that violated financial regulations and discipline. Deepened reform of the budget management system and tightened financial supervision made budgetary funds safer and their use more standardized and effective.

Fellow Deputies, In general, we met with more difficulties than we had anticipated in implementing the 2003 budgets. The results, however, were better than we had expected. But we are clearly aware that there are still problems we cannot afford to ignore in implementing the budgets. First, revenue is seriously stretched to meet expenditures and the problem is so severe that we lack the financial resources to do many things that need to be done. Second, potential risks arising in the course of economic development constantly impinge on budget implementation. It is hence very difficult for us to prevent and defuse financial risks. Third, the pattern of expenditures still needs to be adjusted and we do not yet give more financial support to the development of social undertakings. In some regions, especially in rural areas, people still do not have adequate access to schools, doctors, potable water and transportation. Fourth, primary-level authorities in some areas still have financial difficulties, as is manifested in delayed wage payments there. Fifth, falsification of accounts, tax evasion and fraud, and extravagance and waste remain serious problems. The financial and economic order has yet to be further standardized, and budgetary funds have to be used more efficiently. We must deal with these problems conscientiously and solve them step by step by increasing our sense of urgency and mission, enhancing our sense of responsibility when handling financial affairs in the interest of our people, accelerating the development of the public finance system and working energetically to improve the socialist market economy.

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