Reform increases local govts' disposable funds

Transfer payment to be optimized

The State Council, China's cabinet, on Monday announced it would optimize the country's transfer payment system as part of China's ongoing fiscal and taxation reforms, a move analysts said would help to increase disposable fiscal funds for local governments.

The share of the central government's general transfer payments to local governments will be gradually increased to over 60 percent and the amount of the general transfer payment fund will also be expanded in the coming years, the State Council said in a statement published Monday on its website.

Existing special transfer payments used to fund the same projects should be consolidated to avoid duplication of expenditures and these with low efficiency would be abolished, the State Council said.

China's central government currently offers two types of funds to local governments to offset their fiscal gap - the "general transfer payment" which accounted for 58.2 percent of the total amount of funds in 2014 and the "special transfer payment" which accounted for 41.8 percent, Ministry of Finance (MOF) said Monday in a separate statement posted on its website.

Special transfer payments, provided to local governments with designated use set by the central government before transferring the funds, reached 1.96 trillion yuan ($313 billion) in 2014, and general transfer payments, allocated by local governments independently based on their economic condition and financial demand, were 2.72 trillion yuan last year, according to data from the MOF.

The reform of China's transfer payment system will increase the disposable financial resources of local governments and is an important part of the country's ongoing fiscal and taxation reform to balance the central and local fiscal revenues, Zhang Bin, director of the taxation office at the Beijing-based National Academy of Economic Strategy, told the Global Times Monday.

According to data from the MOF, projects funded by the special transfer payments had been reduced to around 150 in 2014 from 220 in 2013.

Compared with the central government, the local authorities are more familiar with local residents' demands for public services offered by governments, which would help them to arrange fiscal expenditure more in line with local economic conditions, the MOF said in the statement.

The reform of the transfer payment system followed a slowdown in China's fiscal revenue growth and a call to improve efficiency to spur the slowing economy.

According to data from the MOF released on Friday, China's fiscal revenue growth dropped to a 23-year low of 8.6 percent in 2014, registering a total of 14 trillion yuan.