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China to clarify fiscal power of central and local governments

Updated: Feb 8,2018 5:35 PM

China is planning to reform the division of fiscal power and expenditure responsibilities between central and local governments in basic public services, according to a circular recently issued by the General Office of the State Council.

The reform is aimed at establishing a basic public service system featuring well-defined rights and responsibilities, coordinated financial powers and a reasonable standard. It should also be a safeguard mechanism to ensure its operations.

It was decided that 18 items under eight categories are included in the shared fiscal responsibilities between central and local governments, including compulsory education, basic employment services, and basic healthcare insurance.

The central government will take charge of formulating a national standard for ensuring the delivery of basic public services, which should ensure the basic needs for people’s life and development while improving its level in line with economic development and financial capability.

The current financial security or central government’s subsidy standards should be used as criteria to formulate the national standard for nine items of public services in the eight categories, including funds for compulsory education, subsidy for basic pension and basic public health services.

As economic development varies throughout the country and each public service has its own attributes, the division of expenditure responsibilities between central and local governments for each service would be different.

Specifically, sharing fiscal obligations would vary in seven items for different regions, which are divided into three levels, such as state stipend for secondary vocational education, subsidy for urban and rural residents’ basic healthcare insurance, and basic public health services.

Another six items, including funds for compulsory education, will be apportioned according to the current related policies.

The proportion of central government’s expenditure for the last five items covering basic employment services, medical aid, and aid for people in dire circumstances will depend on local governments’ financial capacity and number of people in need.

The transfer payment system should be improved under the reform. Governments under provincial level are also urged to carry out the division of expenditure responsibilities.

As supporting measures, fiscal departments are asked to fulfill their obligations in the reform, enhancing budget management and building big data platforms. Supervision will be reinforced, and performance management will be applied over their work.

The reform is set to be carried out starting Jan 1, 2019.