We owe these achievements to the sound policymaking and firm leadership of the CPC Central Committee and the State Council; to the oversight, guidance, and strong support of the NPC, the CPPCC National Committee, and all of their members; and to the joint efforts and hard work of all regions, government departments, and all our people.
At the same time, we are soberly aware that there are still a number of difficulties and problems standing in the way of fiscal work. Among these are the increasing difficulty in maintaining a balanced budget and the inflexibility in the structure of expenditures. Debt pressure on local governments is mounting, instances of borrowing in breach of regulations or in disguised form are still occurring, and the prevention and control of potential risks is becoming exceptionally difficult. The capacity of certain departments and organizations to execute their budgets is still quite poor, and work on some major programs has not gotten off the ground on time or has progressed at an unacceptably slow pace. Furthermore, government funds can still be utilized in a more coordinated, secure, and effective manner. We view these issues as extremely important, and will take effective measures to resolve them.
II. Central and Local Draft Budgets for 2016
This year is the first year of the decisive stage in finishing building a moderately prosperous society in all respects and an important year for surmounting difficulties in the push towards structural reform. China's economic fundamentals remain favorable for long-term growth, its economy remains resilient with strong potential and ample room for growth, the foundation and conditions for supporting sustained growth remain intact, and the momentum for economic structural adjustment has not slackened. Yet at the same time, China must simultaneously deal with the slowdown in economic growth, make difficult structural adjustments, and absorb the effects of previous economic stimulus policies. Structural issues are pulling down total factor productivity growth, and the economy still faces considerable downward pressure.
On the fiscal front, China receives most of its tax revenue from taxes related to goods and services, so as economic growth slows down and the PPI continues to fall, fiscal revenue growth is slowing at a rate greater than that of GDP growth. Additionally, the greater reductions in taxes and fees aimed at maintaining steady economic growth and pushing forward structural reform, and the substantial loss in revenue from across-the-board implementation of the reform to replace business tax with VAT in particular, are further pulling down growth in fiscal revenue. On the other hand, government expenditures are rather inflexible and will be driven up by the efforts to transform the growth model, strengthen points of weakness, and guard against risks. On the whole, the fiscal situation in 2016 will present a more challenging environment in which to achieve a balance of payments.
In light of the fiscal and economic landscape, in preparing the budgets for 2016 and carrying out public finance work, we need to thoroughly put into practice the guiding principles from the 18th National Congress of the CPC, the third, fourth, and fifth plenary sessions of its 18th Central Committee, the Central Economic Work Conference, and General Secretary Xi Jinping's major policy addresses. Acting in accordance with the decisions and plans of the CPC Central Committee and the State Council, the overall plan for promoting all-round economic, political, cultural, social, and ecological progress, as well as the Four-Pronged Comprehensive Strategy,*(1) we must firmly establish and put into practice the philosophy of innovative, coordinated, green, open, and shared development, adapt to the new normal in economic development, adhere to the policy of reform and opening up as well as the general principle of making progress while keeping performance stable, and follow the general guidelines that macro policies should be stable, industrial policies targeted, micro policies flexible, reform policies practical, and that social policies should ensure basic living needs. We will continue to implement proactive fiscal policy and increase its intensity. We will accelerate reform of the fiscal and tax systems, promote supply-side structural reform while moderately expanding aggregate demand, support efforts to cut overcapacity and excess inventory, deleverage, reduce costs, and strengthen points of weakness, and facilitate adjustments to the industrial structure and the emergence of new drivers of growth. We need to continue to manage public finances on the basis of law and fulfill all of the requirements of the Budget Law. We need to increase overall coordination in the use of government funds, put both idle and additional funds to work, and optimize the structure of budgetary expenditures to improve the performance of fiscal spending. We need to tighten our belts, practice thrift, and prioritize expenditures towards ensuring the basic living standards of the people while strictly controlling general expenditures and reducing other expenditures. We need to strengthen government debt management, effectively guard against fiscal risks, and work hard to ensure a good beginning for economic and social development in the 13th Five-Year Plan period.
(1)* The Four-Pronged Comprehensive Strategy is to make comprehensive moves to finish building a moderately prosperous society, deepen reform, advance the law-based governance of China, and strengthen Party self-conduct.
1. Fiscal policy for 2016
We will continue to implement proactive fiscal policy in 2016 and increase its intensity. This will be mainly reflected in the following four areas.
First, we will further reduce taxes and fees.
We will implement the trials for replacing business tax with VAT in all sectors, extending it to the construction, real estate, financial, and consumer service industries, and allowing businesses to deduct the VAT on their new real estate purchases or on their payments for real estate rentals. We will step up efforts to clear up and reform administrative charges and government-managed funds by expanding the scope of exemptions for 18 types of administrative charges from only small and micro businesses to all enterprises and individuals, reducing required payments into new vegetable land development funds and forestry maintenance funds to zero, suspending the collection of payments into price adjustment funds, and increasing the body of tax payers eligible for exemption from educational surcharges, local educational surcharges, and water conservancy development fund payments by raising the cutoff for eligibility from a monthly sales or turnover figure of 30,000 yuan to 100,000 yuan. It is projected that the above tax and fee reduction policies will save businesses and individuals more than 500 billion yuan over the course of 2016.
Second, we will allow the deficit to increase.
Government deficit for 2016 is projected to be 2.18 trillion yuan nationwide, an increase of 560 billion yuan over 2015, and the deficit to GDP ratio is projected to be 3%, 0.6 percentage points higher than 2015. While appropriately increasing mandatory government expenditures, we will ensure the expanded deficit goes mainly towards filling the gap in government revenue left by tax and fee reductions, enabling the government to meet its expenditure responsibilities.
In addition, we will also allow a considerable rise in the special debt of local governments that is included in the budgets of government-managed funds, and we will put into use more carryover and surplus funds so as to ensure sufficient levels of both total spending and key area spending.
Third, we will adjust and optimize the structure of expenditures.
We will make the proper arrangements for expenditures aimed at promoting the wellbeing of the people in line with the principles of sustainability and ensuring basic needs. We will strictly control budgets for spending on official overseas visits, official vehicles, and official hospitality, while also reducing general expenditures such as those related to meetings. We will carry out rational assessments of policy-linked expenditures and unsustainable expenses, such as those made on overly ambitious commitments or on overly high expenditure standards during times of high revenue growth, and make prompt reductions on the basis of these assessments. We will improve the structure of transfer payments, focusing on cutting the number of special transfer payment items while making corresponding increases to general transfer payments aimed at creating more equitable access to basic public services as well as to transfer payments for old revolutionary base areas, areas with concentrations of ethnic minorities, border areas, and poor areas. Infrastructure investment by the central government will be more focused on basic public welfare projects within its purview, and less on small or miscellaneous projects. This investment is projected to be 500 billion yuan in 2016, which is an increase of 22.4 billion yuan over 2015.
