The Budget Puzzle

The budget approved by the NPC early this year anticipated 4.4 trillion yuan of state revenues, a 13.8 percent growth over last year's. However, as the Institute calculates, the number is very likely to exceed 5 trillion. 

Sun explains that the Ministry tends to use the most pessimistic and conservative projections for revenues when budgeting. An official in the Ministry who wishes to remain anonymous says, "No one agrees to set a budget too big to balance."

This year's state revenue growth will be approximately 30 percent, double the original estimate. Such a sharp rise, Sun believes, largely stems from stricter taxation management. He adds that it's also hard to predict how revenues will pan out as the year progresses.

One example is that it only took four months for the stamp tax on securities trading to reach its budgeted number. As the stamp tax rate rose at the end of May and the stock market continued to flourish, income from stamp tax totaled 143.6 billion yuan by September, far exceeding the budget of 20.1 billion yuan. By some counts, revenues from the stamp tax alone contributed to a 4.7 percent increase in all state revenues.

Stepping back, revenues of the past three quarters closely match those for the whole of 2006.  This sets a new record in revenue growth, says Shu Qiming, director of Planning and Statistics Division under the State Administration of Taxation.

But this makes some researchers uneasy. Private enterprises are under an increasingly heavy tax burden, says Bao Yujun, chairman of All-China Society of Private Economy Research.
The Seventh Survey on Private Enterprises shows a median tax of 260,000 yuan, which contrasts against a median profit of 210,000 yuan. A rapid expansion of revenues is not in the least a happy occurrence, says Bao.

The greatest concern lies in the potential for departments and ministries to be prodigal in their hurry to spend.

"This is what we at the NPC frequently refer to as the science of budgeting," says He. "What's the point of budgeting if the funds made available aren't used? Current budgeting is so simplified that the 2,000 delegates have no idea where the money exactly goes, including the experts among them."

Chen Shu, a representative of the NPC, complains that the present budgets fail to divide items by whether they are meant for projects or people, and therefore funds for projects are often squeezed to make way for administrative costs. It's meaningless to examine the report if such details are not clarified, Chen says.

"Budget reform is the fundamental solution to the current problem. But reform faces various challenges, which arise from the interests of ministries." He says.