Full Text: Report on China's central, local budgets

The following is the full text of the Report on the Implementation of the Central and Local Budgets for 2007 and on the Draft Central and Local Budgets for 2008, which was submitted for review on March 5 by the 11th National People's Congress:

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2007 AND ON THE DRAFT CENTRAL AND LOCAL BUDGETS FOR 2008

First Session of the Eleventh National People's Congress

March 5, 2008

Ministry of Finance

Fellow Deputies,

The Ministry of Finance has been entrusted by the State Council to report on the implementation of the central and local budgets for 2007 and on the draft central and local budgets for 2008 for your deliberation and approval at the First Session of the Eleventh National People's Congress (NPC), and also for comments and suggestions from the members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

I. Implementation of the Central and Local Budgets for 2007

Under the correct leadership of the Communist Party of China (CPC), the people of all China's ethnic groups followed the guidance of Deng Xiaoping Theory and the important thought of Three Represents, thoroughly applied the Scientific Outlook on Development, and comprehensively implemented the principles and policies of the central authorities and the decisions and resolutions of the Fifth Session of the Tenth NPC in 2007. As a result, the national economy continued to grow rapidly, the economic structure and performance improved, and people's lives got better. The central and local budgets were also satisfactorily implemented.

National revenue reached 5.130403 trillion yuan, an increase of 1.254383 trillion yuan or 32.4% over the figure for 2006 (both here and below) and equaling 116.4% of the budgeted figure. This was made up of 2.773899 trillion yuan collected by the central government and 2.356504 trillion yuan collected by local governments. National expenditures amounted to 4.95654 trillion yuan, an increase of 914.267 billion yuan or 22.6% and equaling 106.6% of the budgeted figure. This was made up of 1.144504 trillion yuan disbursed by the central government and 3.812036 trillion yuan by local governments.

The implementation of the central budget is as follows: Revenue totaled 2.858949 trillion yuan, an increase of 734.56 billion yuan or 34.6% and equaling 117.1% of the budgeted figure. Revenue included 2.773899 trillion yuan collected by the central government and 85.05 billion yuan turned over by local governments. Expenditures totaled 2.955749 trillion yuan, an increase of 606.464 billion yuan or 25.8% and equaling 110% of the budgeted figure. Expenditures included 1.144504 trillion yuan disbursed by the central government and 1.811245 trillion yuan paid out as tax rebates and transfer payments to local governments. In addition, 103.2 billion yuan was set aside for the central budget stability and regulation fund for future use. The central government deficit was 200 billion yuan, 45 billion yuan less than the amount approved at the Fifth Session of the Tenth NPC. At the end of 2007, the outstanding balance of government bonds in the central budget totaled 5.207465 trillion yuan, which was under the limit of 5.336553 trillion yuan set for the fiscal year.

Figure 1 Central Government Revenue and Expenditures in 2007

Expenditures in the central budget (including central government spending plus tax rebates and transfer payments to local governments) were as follows: spending on education totaled 107.635 billion yuan, up 76% and equaling 125.4% of the budgeted figure. Expenditures for science and technology came to 99.999 billion yuan, an increase of 26% and equaling 113.5% of the budgeted figure. Expenditures for the social safety net and employment effort came to 230.316 billion yuan, up 13.7% and equaling 114.1% of the budgeted figure. Expenditures for medical and health care reached 66.431 billion yuan, up 296.8% and equaling 212.4% of the budgeted figure. Expenditures for environmental protection amounted to 78.21 billion yuan, up 61% and equaling 164.7% of the budgeted figure. Expenditures for agriculture, forestry and water conservancy totaled 127.449 billion yuan, up 43.9% and equaling 106.2% of the budgeted figure. Expenditures for industry, commerce and banking (mainly consisting of expenditures for ensuring workplace safety, storing grain, cotton, oil and other important goods and materials, and paying off the debts of policy-supported purchases of grain on credit and the interest on these debts) came to 242.916 billion yuan, up 41% and equaling 127.9% of the budgeted figure. Expenses for national defense totaled 348.277 billion yuan, up 18.1% and equaling 100.3% of the budgeted figure. Expenditures for providing general public services totaled 232.301 billion yuan, up 5% and equaling 100.4% of the budgeted figure. Included in this total is 99.345 billion yuan in interest payments on domestic and foreign debts. Expenditures for tax rebates and fiscal transfer payments to local governments totaled 1.092435 trillion yuan, up 21.2% and equaling 108.1% of the budgeted figure.

The implementation of local budgets is as follows: revenue amounted to 4.167749 trillion yuan, an increase of 987.246 billion yuan or 31% and equaling 114.9% of the budgeted figure. This included 2.356504 trillion yuan collected by local governments and 1.811245 trillion yuan in revenue from tax rebates and transfer payments paid by the central government. Expenditures totaled 3.897086 trillion yuan, an increase of 775.226 billion yuan or 24.8% and equaling 107.4% of the budgeted figure. Expenditures included 3.812036 trillion yuan spent by local governments and 85.05 billion yuan they turned over to the central government. Transfer payments from the central government accounted for 36.7% of local government spending nationwide, and the percentage went up to 54.1% in the central and western regions. Revenue exceeded expenditures by 270.663 billion yuan, and this surplus mainly came from the surplus revenue in the central and local budgets that was not spent last year and will be rolled over into local budgets this year. These figures may change when the final accounts are calculated.

Figure 2 Local Governments' Revenue and Expenditures in 2007

The overall situation concerning budget implementation and financial operations in 2007 is as follows:

1. National revenue grew rapidly.

The national economy maintained rapid yet steady development in 2007. Based on this, financial, tax, and customs authorities at all levels worked hard to administer taxes in accordance with the law, made management more scientific and meticulous, improved the quality and efficiency of tax revenue collection and management, and standardized the management of non-tax income. All this resulted in the rapid growth of national revenue. Specifically: Domestic value added tax (VAT) receipts totaled 1.547011 trillion yuan, up 21% and equaling 108.5% of the budgeted figure. Domestic consumption tax receipts stood at 220.69 billion yuan, up 17% and equaling 107.4% of the budgeted figure. VAT and consumption tax receipts from imports totaled 615.221 billion yuan, up 24% and equaling 109.3% of the budgeted figure. VAT and consumption tax rebates for exports came to 563.5 billion yuan, up 15.5% and equaling 115.5% of the budgeted figure, and this was equivalent to a decrease in revenue by the same amount. Business tax receipts reached 658.199 billion yuan, up 28.3% and equaling 113.6% of the budgeted figure. Corporate income tax receipts grew by 37.9% to reach 876.947 billion yuan, equaling 120.2% of the budgeted figure. Individual income tax receipts rose by 29.8% to reach 318.554 billion yuan, equaling 110.8% of the budgeted figure. Stamp tax receipts amounted to 226.176 billion yuan, an increase of 500.5% and equaling 545% of the budgeted figure. Tariff receipts totaled 143.254 billion yuan, up 25.5% and equaling 114.6% of the budgeted figure. Non-tax revenue stood at 569.104 billion yuan, up 22.8% and equaling 111.2% of the budgeted figure.

Figure 3 Breakdown of National Revenue in 2007

It should be noted that the rapid increase in national revenue was mainly a result of rapid yet steady economic development, improved economic structure and efficiency, and strengthened revenue collection and management. There were also unique, policy-related and one-time factors that contributed to the increase. These factors mainly include the following: first, the increases in transactions on the securities market and in the stamp tax rate on securities transactions increased tax revenue by 182.585 billion yuan. Second, tax rebates were reduced by 40 billion yuan due to policy changes, and this was equivalent to an increase in revenue by the same amount. Third, railway transportation enterprises turned over to the central government 19.6 billion yuan from the proceeds of their sale of state assets, and that was a one-time only source of revenue. Fourth, special surcharges on oil sales for the whole year totaled 50.14 billion yuan, an increase of 12.937 billion yuan over 2006 when they were collected for only two quarters.

National revenue exceeded the budget target by 723.9 billion yuan, including a 416.8 billion yuan excess in the central budget. The main reasons for this are as follows. The actual economic growth rate exceeded the target rate. In particular the actual growth in areas that generate tax revenue, including added value of industry and commerce, total fixed asset investment, total volume of imports and exports, total retail sales of commodities, and corporate profits all exceeded the projected figures by a large margin, so the actual tax revenue they generated exceeded the budgeted figures. In implementing the budget, the government introduced new policies for strengthening macroeconomic regulation, such as adjustments of the stamp tax on securities transactions and the policy on export tax rebates, and they also contributed to the revenue increase. In addition, tax collection and management were strengthened, resulting in the collection of a higher proportion of taxes owed.

The surplus revenue in the central budget in 2007, except that portion used to finance additional expenditures required by law, was mainly used in important areas concerning people's lives and for establishing systems and mechanisms in accordance with the Budget Law of the People's Republic of China, the Law on Oversight by the Standing Committees of People's Congresses at All Levels of the People's Republic of China, the Decision of the NPC Standing Committee on Improving Examination and Oversight of the Central Budget, and relevant resolutions and decisions of the Fifth Session of the Tenth NPC, as well as on the basis of comments and suggestions from the Law Enforcement Inspection Group of the NPC Standing Committee, relevant special committees of the NPC and deputies to the NPC.

First, 101.4 billion yuan was spent in compliance with the requirements of the existing financial system and regulations. Of this sum, 66.7 billion yuan was spent to increase tax rebates and general transfer payments to local governments. The surplus revenue of 11.7 billion yuan from the vehicle purchase tax was all spent on road construction, including the maintenance and repair of dilapidated bridges. All the 19.6 billion yuan that railway transportation enterprises received from the sale of their state assets and turned over to the central government was spent on railway construction. In addition, 2.9 billion yuan was spent on science and technology.

Second, 143.7 billion yuan was spent to improve people's lives and strengthen weak links. Of this sum, 16.1 billion yuan went to agriculture, forestry and water conservancy; 21 billion yuan to education; 34.4 billion yuan to the social safety net and employment effort; 31.3 billion yuan to medical and health care; 19.6 billion yuan to environmental protection; 4.8 billion yuan to low-rent housing subsidies; 13.3 billion yuan to public security and general public services; and 1.1 billion yuan to culture.

Third, 171.7 billion yuan was spent to make public finance and economic activities more stable and sustainable. This breaks down as follows: 45 billion yuan was spent to reduce the budget deficit; 23.5 billion yuan went to clearing up historical debts arising from grain policies; and the other 103.2 billion yuan was spent to increase the central budget stability and regulation fund. The State Council has reported its use of the surplus to the Standing Committee of the Tenth NPC.

2. Macro-regulation was further strengthened through public finance.

On the basis of increasing spending on agriculture, rural areas and farmers and increasing transfer payments, we promptly improved measures for implementing a prudent fiscal policy and coordinated these improvements with other policies to solve serious problems affecting economic performance. All this promoted sound and rapid economic development.

We reduced the deficit significantly and improved the mix of central government development investment. The central government deficit was 200 billion yuan in 2007, dropping to 0.8% of GDP. This figure is attributed to a deficit reduction of 30 billion yuan from 2006 in the budget for 2007 and a deficit reduction of another 45 billion yuan when the budget was implemented. Central government development investment in 2007 totaled 134.4 billion yuan. These funds were mainly used to build a new socialist countryside, develop social programs, protect the ecosystem and develop the western region. The pace of budget implementation was adjusted to ensure budgetary funding for key projects.

We implemented fiscal and taxation measures to curb excess liquidity. In accordance with the Resolution of the NPC Standing Committee on Approving the Issuance of Special Government Bonds by the Ministry of Finance to Buy Foreign Exchange and on Adjusting the Limit for the Outstanding Balance of Government Bonds at the End of 2007, the Ministry of Finance issued 1.55 trillion yuan worth of special government bonds to buy 200 billion U. S. dollars of foreign exchange, thus releasing more RMB from foreign exchange holdings and reducing the pressure on implementation of monetary policy. We reduced the applicable tax rate for individual income on savings interest from 20% to 5%. As a result, people's incomes from savings interest increased, while at the same time the impact of rising prices on these incomes was reduced.

We adjusted and improved fiscal and taxation measures to promote the balance of payments. We eliminated export rebates for 553 resource products and products whose production is energy intensive or highly polluting. Export rebate rates were reduced for 2,268 products whose export might easily lead to trade friction. We lowered import tariffs on 511 energy resources and resource products and increased export tariffs on 222 resource products and products whose production is energy intensive or highly polluting. We adjusted the list of commodities whose use is classified as prohibited or subject to some restrictions in the processing trade. Preferential tax treatment was given to the importation of some resource products and major equipment. A policy was introduced to subsidize imports of products and technologies on the list of products and technologies whose import is encouraged. We gave support to enterprises following the "go global" policy.

We improved fiscal and taxation measures to support energy conservation and emissions reduction. The central government allocated 23.5 billion yuan and local governments increased funding to support the launch of ten major national energy conservation projects; build pipe networks for urban sewage treatment systems in the central and western regions; control water pollution in the Huai, Hai, Liao and Songhua rivers and Tai, Chao and Dianchi lakes; and eliminate backward production facilities. We formulated and introduced a policy making it mandatory for governments to buy energy-saving products. Further, the number of products labeled as environmentally friendly and to be given priority in government procurement was increased from 856 to 2,823. A preferential tax policy was introduced to encourage the pumping, extraction and utilization of coal seam gas and to encourage water-conserving irrigation. The resource tax rate on selected taxable mineral products was adjusted to promote rational exploration and utilization of natural resources. Environmental protection and energy conservation were taken as factors for eligibility for preferential tax treatment under the new Law on Corporate Income Tax. We made steady progress in the reform of the compensation system for the use of mineral resources and comprehensively implemented policies for promoting the development of both renewable resources and new energy resources. We made innovations in the mechanism for responding to climate change.

We gave strong support to scientific and technological advances and independent innovation. We increased allocations to the State Natural Sciences Fund, the National Key Technology R&D Program and other research programs. We gave greater support to nonprofit research institutes and scientific research in nonprofit sectors. We also supported the building of a system of industrial technologies for modern agriculture, the establishment of a national platform to develop basic conditions for science and technology, and the creation of national laboratories and national key laboratories. We promoted reform of the system for managing research institutes. We encouraged independent innovation in small and medium-sized science and technology enterprises, launched a pilot project for venture capital investment, and formulated and implemented taxation policies to support the development of state university science parks and science and technology business incubators.

3. We gave more support for the building of a new socialist countryside.

Funding for agricultural subsidies increased substantially. The central government spent 27.6 billion yuan, an increase of 130%, to provide farmers with general direct subsidies for buying agricultural production supplies. It also spent two billion yuan in subsidies for purchasing agricultural machinery and tools, up 233.3%, and 6.66 billion yuan in subsidies for growing superior grain varieties, up 60.5%. Direct subsidies to grain growers nationwide came to 15.1 billion yuan, and in 13 major grain-producing provinces and autonomous regions these subsidies accounted for more than 50% of those areas' grain risk funds. The government set price floors for the purchase of grain and bought 28.95 billion kilograms of wheat. The central government allocated 10.53 billion yuan to support the production of hogs, dairy products and oilseeds and ensure that supplies were adequate to meet demand. We carried out trials to subsidize insurance premiums for essential crops such as rice and wheat in six provinces and autonomous regions. We also supported programs to train 3.5 million rural workers for nonagricultural employment as well as scientific and technological training programs in 20,000 villages to foster a new type of farmer.

Rural working and living conditions were improved. The central government spent 19.46 billion yuan to continue funding the construction of six categories of small rural projects (water-efficient irrigation, potable water supplies, road building, methane production facilities, hydroelectric plants, and pasture enclosure, Tr.) and another 4.2 billion yuan to build small water conservancy facilities and renovate small, dilapidated reservoirs. A total of 11.57 billion yuan was spent to promote overall development of agriculture, resulting in 1.57 million hectares of low- and medium-yield farmland being upgraded and high-grade arable land being cultivated, and in three billion kilograms of grain production capacity being added last year. Part of this sum also went to 1,457 projects to make agricultural operations more industrial. An additional 17.2 billion yuan paid out to the central government in compensation for land converted to development purposes was used to develop and protect primary farmland, improve land and cultivate arable land. One billion yuan was appropriated to promote the development of farmers' specialized cooperatives and the dissemination of agricultural science and technology. In addition, 1.29 billion yuan was spent to improve the distribution of goods and develop the market system in the countryside.

Support was given to fight natural disasters, provide disaster relief and reduce poverty through development. In response to serious natural disasters in 2007, the central government promptly appropriated 13.3 billion yuan for disaster relief, supplemented by generous appropriations from local governments. To intensify poverty reduction through development, the central government spent 14.4 billion yuan mainly in poor areas in the central and western regions. We also made innovations in working mechanisms, which made our poverty reduction efforts even more effective.

We promoted the development of rural social programs. We gave strong support to rural compulsory education, a new type of rural cooperative medical care and other rural social programs. We continued to implement the system for rewarding and supporting some rural families that observed the state's family planning policy and carried out the "fewer children equals faster prosperity" project in the western region. Trials for a special assistance system for family planning were launched in selected areas.

Altogether, 431.8 billion yuan from the central budget was spent on agriculture, rural areas and farmers, an increase of 80.1 billion yuan or 23%. It should be pointed out here that expenditures supporting agriculture, rural areas and farmers do not constitute a single budgetary item. In order to make it easier for you to examine and deliberate expenditures in this area, we have combined all expenditure items related to agriculture, rural areas and farmers so there will be some overlap with expenditures for education, medical and health care, etc.

4. We made further progress in ensuring the people's wellbeing and improving their lives.

We promoted the development of education. Spending of the central government on education totaled 107.635 billion yuan, an increase of 76%. A total of 36.48 billion yuan from the central budget, along with 32.3 billion yuan from local budgets, was spent to fully carry out the reform to introduce a system for guaranteeing funding for rural compulsory education, exempt all the students receiving compulsory education in rural areas across the country from paying tuition and miscellaneous education fees, provide them with free textbooks, give living allowances to students from poor families who stay in school dormitories, raise budgetary funding for operating expenses of primary and secondary schools and increase subsidies for renovating their buildings. All this benefited 150 million students receiving compulsory education in rural areas and 7.8 million students from poor families living on campus. We supported the trials to provide free education to education students at normal universities directly under the Ministry of Education. A new policy system for providing financial assistance to students from poor families was adopted to cover more students and raise the amount of aid they receive. We also gave financial support to students from poor families at regular undergraduate institutions, and vocational colleges and secondary vocational schools in the form of grants.

We stimulated the development of medical and health care. Central government expenditures for medical and health care reached 66.431 billion yuan, a rise of 296.8%. The new type of rural cooperative medical care was extended to reach 730 million rural residents in 86% of the country's counties, and the central government provided 11.4 billion yuan in subsidies for this program. We began trials to implement a basic medical insurance system for urban residents in selected cities, with annual subsidies of at least 40 yuan per person from the central government. A total of 3.4 billion yuan was spent to further carryout the work of providing medical care for needy urban and rural residents. Spending on public health increased, with 9.68 billion yuan used primarily to support prevention and control of major diseases and development of community-based health services.

We supported social safety net, employment and other work. The central government spent 230.316 billion yuan on the social safety net and employment effort, an increase of 13.7%. To put in place a system of cost of living allowances for rural residents throughout the country, the central government paid out three billion yuan in subsidies to areas with financial difficulties and local governments also increased their spending. It spent 16 billion yuan to support improvements in the system of cost of living allowances for urban residents. It allocated 6.5 billion yuan in subsidies to raise the basic pension benefits for retired enterprise employees. It also granted 1.7 billion yuan in subsidies to increase the allowances for entitled groups and allowed more people to become eligible for these allowances, benefiting over six million people. Subsidies were granted to urban recipients of cost of living allowances as well as junior college and secondary technical school students from poor families who were materially affected by the rises in the prices of pork and other foods. A total of 15 billion yuan was granted in subsidies to industries and groups such as fisheries and taxi drivers that were greatly affected by the increases in the prices of refined oil products. A total of 5.11 billion yuan was allocated to relieve enterprises of their obligation to operate social programs. Twenty billion yuan was spent to subsidize the policy-based closures or bankruptcies of 92 state-owned enterprises (SOEs) and to find new employment for 357,000 of their laid-off employees. Another ten billion yuan in subsidies was allocated to pay long-overdue salaries and wages owed to SOE employees. The central government spent 13.7 billion yuan to provide further aid to residents displaced by large and medium-sized reservoirs. The central government paid out 23.8 billion yuan in subsidies to increase support for employment and reemployment efforts, and it further improved the preferential taxation policy for employment of the jobless, people with physical or mental disabilities, and other special groups.

We supported environmental protection and ecological conservation. The central government allocated 38.37 billion yuan to support implementation of key forestry ecological projects such as protecting virgin forests, reforesting farmland, and controlling the sources of dust storms affecting Beijing and Tianjin and to further improve the policy for funding ecological conservation of forests. This figure includes an additional allocation of 1.12 billion yuan to continue to provide rural households that reforested their land with subsidies after their grain and cost of living allowances expired. The central government also paid 1.58 billion yuan to support the reform of the system of collective forest rights.

We instituted a low-rent housing system. For this purpose, the central government allocated 5.1 billion yuan. This was supplemented by increases in spending by local governments. The central government also formulated accompanying financial measures and methods and clarified tax and fee policies to support the efforts of all localities to set up a sound low-rent housing system in urban areas. We also deepened the reform of the housing system and improved the system for managing matching-fund programs for housing.

We promoted development of cultural programs and the culture industry. We vigorously advanced the reform of the cultural management system and sped up development of the system of public cultural services in rural areas. The primary focus of support was on implementing projects to make the reception of central radio and television programming available to more areas through broadcasting facilities rather than cable, to set up a national shared databank of cultural information and resources, and to show movies in the countryside. All of these projects helped enrich the cultural life of rural residents. We also supported growth of the cartoon and animation sector in China.

We strengthened public services and public security. The central government appropriated 3.3 billion yuan to support efforts to tighten oversight of the quality and safety of exports, to crack down on the production and marketing of counterfeit goods and conduct random inspections and special campaigns to ensure the quality of products, and to improve the safety standard system and the inspection and testing system for food. It spent three billion yuan to fully fund the expenditures of courts following the reform of court costs. It also allocated 7.49 billion yuan in subsidies to help procuratorial, judicial and public security organs in poor areas improve their equipment and supplies while also ensuring funding for the costs of handling cases.

5. Fiscal and taxation reforms progressed steadily.

The system of transfer payments was further improved. The central government's fiscal transfer payments to local governments, mainly in the central and western regions, came to 709.29 billion yuan in 2007, an increase of 193.32 billion yuan. This figure includes 250.5 billion yuan in general transfer payments, which were used to promote a more balanced financial distribution among different regions. We improved the methods for calculating fiscal transfer payments and introduced a transfer payment system to assist cities that had depended on resources that are now exhausted. We adjusted and improved the "three rewards and one subsidy" policy and increased the rewards to local governments for balancing financial distributions among counties and ensuring key expenditures. The central government allocated 34 billion yuan for rewards and subsidies, an increase of 10.5 billion yuan. This helped to further ease the financial difficulties of both counties and townships. The proportion of county-level expenditures to total local expenditures throughout the country increased by three percentage points compared to the figure before the policy was adopted. We reviewed special transfer payments and cut their number from 213 to 174. The State Council has reported on standardizing transfer payments to the Standing Committee of the Tenth NPC.

Important headway was made in taxation reform. The corporate income tax systems for domestic and overseas-funded enterprises were reformed, and the new Law on Corporate Income Tax and the regulations on implementing it went into effect on January 1, 2008. Collection of taxes on urban land use and vehicle and boat operation is going smoothly after the revision of related regulations, and the relevant taxation policies were also further improved. On the basis of the VAT reform trials in northeast China, the reform was extended to eight industries in 26 old industrial cities in the central region. Progress in resource tax reform entered a new stage.

Reform of the budgetary system gradually made progress. The budgetary system for managing state capital was put into trial operation. The new classification system for government revenue and expenditures was widely adopted in compiling budgets and final accounts and implementing budgets. The reform requiring all central and local government departments to prepare their budgets was deepened, and progress was made in improving the system of standards for expenditures. Trials to set allowable limits for in-kind expenditures and to evaluate performance of budgetary expenditures were conducted. The reform to set up a centralized treasury payment system was carried out in all central government departments, their subsidiary bodies responsible for preparing their own budgets, governments of provincial-level localities and cities specially designated in the state plan, and bodies of most cities and counties that prepare their own budgets. This reduced the steps in the transfer of funds. Trials were conducted on the computerized horizontal integration of the bank accounts for the tax revenue of finance departments and tax departments with the treasury in more than ten provinces. Reform of the collection and transfer of non-tax revenue was carried out in approximately 50 central government departments and nearly all localities, ensuring that revenue finds its way to the state treasury in a timely manner. We improved the government procurement system and deepened the reform of separating revenue from expenditures. Steady progress was made in standardizing the distribution of income to civil servants. Support for corporate and financial reform was also strengthened.

Overall rural reform was deepened. This reform was carried out to varying degrees in 31 provincial-level localities across the country. The tax and fee reform in state-owned farms was promoted, saving 18.56 million farm workers 6.2 billion yuan, or 332 yuan per person. Six billion yuan was appropriated from the central budget to pay off rural debts that were incurred in making nine-year compulsory education universal. Local governments also actively took steps to raise financial resources for this purpose. The overall reform in large lake regions to ease the financial burden of farmers there was steadily advanced, saving 26.16 million farmers 2.3 billion yuan, or 89 yuan per person.6. Financial management and oversight were enhanced.

The timeframe for budgetary preparation was extended, and procedures for preparing and submitting budgets were standardized. Supervision of budgetary preparation was strengthened. Budget implementation work was strengthened. Relevant institutions and measures were improved, and budgetary implementation became more efficient. Trials of paying the expenses of official business with bankcards progressed smoothly. Review of state-owned assets in administrative bodies and government-affiliated institutions was completed. A number of laws and regulations, including the new Law on Corporate Income Tax, were enacted. Research on reform of government accounting was deepened. The new General Rules on Corporate Finance and Rules on Finance in Financial Enterprises were issued and implemented. A system of corporate accounting norms was steadily implemented in both listed companies and some unlisted SOEs. The new system of auditing norms was widely instituted in accounting firms. Notable results were achieved in fiscal oversight. A total of 56.9 billion yuan was found to have been used contrary to regulations or disciplinary rules, of which 21.5 billion yuan was recovered, and responsible persons were held accountable for the losses. Steady progress was made in the computerization of financial management, and its successes are gradually becoming apparent. The State Council gave careful consideration to the relevant decisions and resolutions of the NPC as well as the comments and suggestions raised in the auditing report, and it requested that the Ministry of Finance and other relevant departments willingly accept the oversight by the NPC, the auditing authorities and the public, and take effective steps to rectify their problems. The Ministry of Finance and other relevant departments have worked hard to identify the causes of problems and conscientiously rectified them. The State Council has submitted a report on this matter to the Standing Committee of the Tenth NPC.

The year 2007 was the last year in the term of this government. A review of the past five years shows that work in public finance took on a new aspect.

Financial strength was constantly increased. Between 2003 and 2007, national revenue totaled about 17 trillion yuan, 10 trillion yuan more than the total of the preceding five years, and an average annual increase of 22.1%. National expenditures totaled about 17.7 trillion yuan, 9.6 trillion yuan more than the total of the preceding five years, and an average annual increase of 17.6%.

Figure 4 National Revenue and Expenditures from 2003 to 2007

Note:

Figures for 2007 are performance figures and may differ somewhat from the final accounting figures.

Public finance played an effective role in macroeconomic regulation. As necessitated by the changing economic situation, we shifted from a proactive fiscal policy to a prudent one and reduced the central government deficit considerably. We improved regulatory measures in a timely and targeted way, which in turn promoted sound and rapid economic development. Figure 5 Central Government Deficit in Yuan and as a Percentage of the GDP

Public finance played a visible role in ensuring the wellbeing of the people and improving their lives. We improved the structure of expenditures. More financial resources were expended on improving people's lives. Vigorous efforts were made to establish long-term mechanisms for ensuring the wellbeing of the people and improving their lives. All this contributed to the building of a harmonious society. Between 2003 and 2007, 2.43 trillion yuan of national revenue was spent on education, 629.4 billion yuan on medical and health care, 1.95 trillion yuan on the social safety net and 310.4 billion yuan on culture and sports. Compared with the preceding five years, the above expenditures are increases of 126%, 127%, 141% and 130% respectively. The central government spent a total of 1.6 trillion yuan on solving problems related to agriculture, rural areas and farmers.

Major progress was made in fiscal and taxation reforms. The agricultural tax, livestock tax and special product tax were fully rescinded, and the tax and fee reform in rural areas successfully entered a new stage of overall rural reform. The reform of the export tax rebate system obtained significant success. The taxation system was further improved, and various reforms in the budgetary system were deepened. Improvement was made to the financial system, and reform of the income distribution system steadily advanced.

Steady progress was made in the standardization of financial management and oversight. Budgetary preparation and implementation were improved. Management of state-owned assets by administrative bodies and government-affiliated institutions was gradually strengthened. Much progress was made in running fiscal affairs through legal means. The financial accounting system was improved; the financial oversight mechanism was strengthened, and the computerization of financial management was accelerated.

At the same time, we are fully aware that there still exist problems concerning public finance work. Budgets are crudely prepared, and they are not scientific and accurate enough. The fiscal systems at and below the provincial level need further improvement, the transfer payment system is not yet sufficiently standardized, and some counties and townships are still experiencing financial difficulties. The structure of taxes and fees is not reasonable. The proportion of non-tax revenue in some localities is still too high. The fiscal expenditure system needs to be improved, and support to weak links including agriculture, rural areas and farmers needs to be increased. Fiscal management needs to be more meticulous. There is still serious loss and waste. The legal framework of public finance is weak. The risk of liabilities in public finance cannot be overlooked. We need to give these problems our full attention and take further measures to solve them.

II. The Draft Central and Local Budgets for 2008

The overall requirements for preparing the budgets for 2008 and doing financial work are as follows. We must fully implement the guidelines set out at the Seventeenth National Congress of the CPC and the Central Economic Work Conference. We must hold high the great banner of socialism with Chinese characteristics, take Deng Xiaoping Theory and the important thought of Three Represents as our guide, and thoroughly apply the Scientific Outlook on Development. We must work to increase revenue and reduce expenditures, take all factors into consideration, leave some leeway, maintain a reasonable scale of revenue and expenditures, improve macroeconomic regulation, and concentrate on economic restructuring and changing the pattern of development. We must adjust and improve the structure of expenditures, strictly control regular expenditures, and concentrate on ensuring the wellbeing of the people and improving their lives. We must deepen fiscal and taxation reforms and establish sound fiscal and taxation systems that are conducive to scientific development, focusing on improving the public finance system. We must handle financial matters in accordance with the law and make management more scientific, focusing on improving the performance of public finance management. We must let the function of public finance fully play its role, promote scientific development and social harmony, and make contributions to achieving new successes in building a moderately prosperous society in all respects.

In accordance with the above general requirements and our expectations for economic and social development, the major budgetary targets for 2008 are as follows. Total national revenue is targeted at 5.8486 trillion yuan, 718.197 billion yuan or 14% more than in 2007 (same for below). This sum is made up of 3.1622 trillion yuan collected by the central government, an increase of 14%, and 2.6864 trillion yuan collected by local governments, an increase of 14%. National expenditures should total 6.0786 trillion yuan, a rise of 1.12206 trillion yuan or 22.6%. This sum is made up of 1.32052 trillion yuan of expenditures disbursed by the central government, up 15.4%, and 4.75808 trillion yuan disbursed by local governments, up 24.8%.

Our targets for national revenue and central government revenue are based mainly on the estimates that GDP is expected to grow by 8% in 2008; that the rise in the consumer price index should be held to less than 4.8%; and that economic indexes directly related to tax revenue such as added value in industry, total fixed asset investment, total volume of imports and exports, and total retail sales of consumer goods are all projected to rise. In addition, overall consideration was given to policy adjustments and other factors that could result in an increase or decrease in revenue. On the one hand, fiscal and taxation policies such as reform of the resource tax and the tax on farmland used for nonagricultural purposes as well as the further implementation of measures to improve revenue collection and management will result in some increase in revenue. On the other hand, the implementation of the new Law on Corporate Income Tax, the effects of lowering the individual income tax rate on the interest from saving accounts, the VAT reform taking place in some cities in the central region, and raising the earnings threshold for the individual income tax all will markedly decrease revenue. In addition, favorable taxation policies to support energy saving and emissions reduction, develop the western region, reinvigorate northeast China and other old industrial bases, bring prosperity to the central region, and stimulate employment will also reduce revenue to varying degrees. Improving macroeconomic regulation, implementing a tight monetary policy in particular, will help ensure sound and rapid economic development. Simultaneously, it will also have an impact on the banking and real estate industries and will lead to a continued slowdown in the growth of some energy-intensive and highly polluting industries. This will bring about some reduction of revenue. The recent disaster resulting from snow and ice storms will reduce revenue. In addition, after several successive years of rapid growth, the revenue base figure was already very high in 2007, and part of the revenue was due to either one-time or exceptional factors, which will be either reduced or nonexistent in 2008. This will result in a corresponding drop in the revenue growth rate. Taking all these factors into account, the projection of 14% growth in central government revenue and national revenue is both positive and prudent.

In 2008 we are required to improve macroeconomic regulation, and there will be large spending increases in key areas, so we must keep a firm grip on the scale of revenue and expenditures. Also in 2008, the methods for using surplus revenue will be improved, additional funds made available during budget implementation will be reduced, and we will have to prepare the budget more scientifically and reasonably and be more open to oversight by the NPC. Taking all these factors into consideration, we added 50 billion yuan from the central budget stability and regulation fund to the revenue target in the budget for 2008 on top of the 3.1622 trillion yuan that is to be collected by the central government. Added to the 90.972 billion yuan of revenue to be turned over by local governments, the budgetary revenue target for the central government comes to 3.303172 trillion yuan. Expenditures in the central budget should total 3.483172 trillion yuan, a rise of 17.8%. The deficit target for the central budget is 180 billion yuan. The limit for the outstanding balance of government bonds is 5.518585 trillion yuan in the central budget, an increase of 182.032 billion yuan.

Figure 6 Revenue and Expenditures in the Central Budget for 2008

The main targets for revenue in the central budget are as follows: domestic VAT receipts will reach 1.34 trillion yuan, a rise of 15.5%; domestic consumption tax receipts will come to 247 billion yuan, an increase of 11.9%; VAT and consumption tax receipts from imports will amount to 685.5 billion yuan, up 11.4%; VAT and consumption tax rebates for exports will reach 575 billion yuan (this is equivalent to a decrease in revenue by the same amount), a rise of 2%; business tax receipts will total 22.5 billion yuan, up 11%; corporate income tax receipts will be 643 billion yuan, an increase 13.9%; individual income tax receipts will reach 203 billion yuan, a rise of 6.2%; stamp tax receipts will come to 194.515 billion yuan, basically the same as 2007; tariff receipts will be 160 billion yuan, up 11.7%; and non-tax revenue will reach 143.985 billion yuan, a rise of 5%.

The main targets for expenditures in the central budget are as follows: expenditures for education will total 156.176 billion yuan, an increase of 45.1%. Expenditures for science and technology will come to 113.398 billion yuan, up 26% in comparable terms. Expenditures to support the social safety net and to stimulate employment will be 276.161 billion yuan, a rise of 24.2% in comparable terms. Expenditures for medical and health care will total 83.158 billion yuan, an increase of 25.2%. Expenditures for environmental protection will amount to 102.751 billion yuan, up 31.4%. Expenditures for agriculture, forestry and water conservancy will total 145.049 billion yuan, an increase of 17.2% in comparable terms. Expenditures for industry, commerce and banking (mainly consisting of expenditures for ensuring workplace safety, storing cotton, grain, oil and other important goods and materials, and paying off the debts of policy-supported purchases of grain on credit and the interest on these debts) will be 337.324 billion yuan, a rise of 38.9%. Expenditures for national defense will total 409.94 billion yuan, an increase of 17.7%. Expenditures for general public services will come to 265.54 billion yuan, an increase of 14.3%, including 123.566 billion yuan to pay interest on domestic and foreign debts, up 24.4%. Tax rebates and fiscal transfer payments to local governments will total 1.231781 trillion yuan, an increase of 12.8%.

The key expenditures in the central budget and the main fiscal and taxation policies for 2008 are as follows.

1. We will continue to follow a prudent fiscal policy.

Focusing on restructuring and achieving balanced development, we will improve and follow a prudent fiscal policy. We will coordinate this policy more closely with monetary policy and organically integrate efforts to balance total supply and demand, keep prices stable, make structural adjustments and foster equilibrium. We will maintain the positive trend of steady and fairly rapid economic growth, while working hard to prevent growth from becoming overheated. We will also prevent structural price increases from turning into clear cases of inflation.

We will reduce the deficit and the amount of capital raised through government bonds by an appropriate degree. The central budget deficit is projected to be 180 billion yuan, 20 billion yuan less than the actual deficit and 65 billion yuan less than the central budget deficit in 2007. It is predicted to drop to 0.6% of the GDP. Total central government investment in development projects will be 152.1 billion yuan, an increase of 17.7 billion yuan. This sum is made up of 30 billion yuan from bond sales, a reduction of 20 billion yuan, and 122.1 billion yuan from regular revenue, an increase of 37.7 billion yuan. The focus of central government investment will be on improving working and living conditions in the countryside, strengthening water conservancy and ecological and environmental protection, supporting the development of social programs, and developing major infrastructure projects.

We will promote improvement in the economic structure. Investment will be increased to address the problems related to agriculture, rural areas and farmers and to promote rural economic development. More emphasis will be put on supporting innovations in science and technology, promoting energy conservation and emissions reduction, and adjusting the industrial structure. We will implement fiscal and taxation policies to support the development of the western region, and we will increase transfer payments and promote balanced regional development. Support will be given to domestic production of major equipment, transformation of the old industrial base in northeast China, structural improvement in key industries, and development of alternative industries in cities that once depended on resources that are now exhausted. We will improve policies and measures related to export tax rebates, processing trade, and import and export tariffs. We will restrict the export of resource products and products whose production is energy intensive or highly polluting. However, we will support the export of high value-added products and encourage the import of resource products, products that save energy and reduce consumption, and key spare parts. We will follow a preferential import tariff policy that encourages energy saving, environmental protection and independent innovation. We will support enterprises that engage in innovative forms of foreign investment and cooperation and develop international business operations.

We will give fiscal and taxation policies a significant role in stabilizing prices. Fiscal and taxation mechanisms will be used to strongly support the production of grain, oil, meat, dairy products, vegetables and other agricultural products, ensure an adequate supply of daily necessities and curb excessively fast price rises. We will do our work related to the import of essential commodities well, and we will utilize reserves when necessary. We will promote a balance between supply and demand in the market and basically maintain price stability. We will pay close attention to the impact of rising prices on people's lives and promptly improve or implement policies on subsidies to ensure that the most vulnerable groups in society can meet their basic needs.

The recent disaster resulting from snow and ice storms caused significant losses to China's economy and made life very difficult for disaster victims. We will continue working vigorously to improve the functions of public finance, ensure adequate funding, and adopt policies and measures to strongly support disaster relief and reconstruction work. We will ensure an adequate supply of goods and materials to the disaster areas and offer more assistance to disaster victims to guarantee their basic living conditions before they get back on their feet. We will make funds available for agricultural losses due to the disaster so that agricultural production can be resumed as soon as possible. We will strongly support people in rebuilding their houses that collapsed as a result of the disaster and infrastructure repair in the areas of power grids, transportation, education, radio and television broadcasting, and health care. The central and local governments have allocated 55.52 billion yuan to support disaster relief and reconstruction work. This sum is made up of 27.543 billion yuan from the central government's regular budget and funds under its management and 27.977 billion yuan from local governments. In addition, we will implement favorable taxation policies to support grid and telecommunications enterprises.

2. We will consolidate and strengthen all fiscal and taxation policies designed to support and help agriculture, rural areas and farmers.

We are continuing to make support for agriculture, rural areas and farmers the focus of our budgetary arrangements and fiscal work. Particular attention will be given to strengthening agriculture as the foundation of the economy, promoting its development, increasing rural incomes and making real progress in developing a new socialist countryside. Expenditures in the central budget for agriculture, rural areas and farmers total 562.5 billion yuan, an increase of 130.7 billion yuan or 30.3%.

We will increase subsidies for farmers. Expenditures in the central budget for subsidies to farmers total 133.59 billion yuan, an increase of 25.3 billion yuan or 23.4%. Included in this figure is 15.1 billion yuan in direct subsidies to grain producers, 48.2 billion yuan in general direct subsidies for agricultural supplies,4 billion yuan in subsidies for the purchase of agricultural equipment and machinery, 7.07 billion yuan in subsidies for superior seed varieties, and 1.6 billion yuan in subsidies for training farmers.

We will strongly support the development of agricultural production. Expenditures in the central budget for the support of agricultural production total 304.45 billion yuan (including most of the expenditures for agriculture, forestry and water conservancy, expenditures for farmland reforestation projects that are listed in the environmental protection section of the budget, and subsidies for reform of rural taxes and fees that are listed in the section of the budget dealing with fiscal transfer payments from the central to local governments), an increase of 44.19 billion yuan or 17%. This figure includes: 102.28 billion yuan to develop rural infrastructure; 8.4 billion yuan to finance the building of small farm water conservancy facilities and repair small reservoirs in poor condition; 12.72 billion yuan to finance overall agricultural development, which will focus on supporting efforts to improve low- and medium-yield farmland in major grain-producing regions and reduce water use in medium-sized irrigated areas in order to enhance overall agricultural production capacity; 16.5 billion yuan to stabilize and improve the reward policies for major grain-producing counties; 13.5 billion yuan to improve the follow-up policies on farmland reforestation, continue paying subsidies to farmers displaced by farmland reforestation and strengthen the development of basic subsistence farmland for them; 6.05 billion yuan to improve the system of subsidies for agricultural insurance premiums; and 16.73 billion yuan to increase funding to alleviate poverty through development and make innovations in poverty relief mechanisms. We will increase support for wider application of advanced and appropriate agricultural technologies. In addition, we will improve fiscal and taxation policies and measures to stimulate greater production of pork, dairy products and oilseeds. We will set a floor price for the purchase of grain and appropriately increase the floor price for the purchase of grain and wheat when needed.

We will accelerate development of rural social programs. The central government has allocated 124.52 billion yuan for this purpose, an increase of 61.14 billion yuan or 96.5%. This sum is made up of: 107.32 billion yuan to support rural education, culture and public health; 9 billion yuan to fully set up and optimize a system of cost of living allowances for rural residents; and 6.2 billion yuan to help people affected by natural disasters to restore their lives.

We will increase investment in agriculture, rural areas and farmers through a variety of channels. Compensation paid to the central and local governments for the conversion of farmland to development purposes will continue to be used for developing and protecting basic farmland, improving land and developing arable land in accordance with regulations. Local government budgets will also increase allocations to aid agriculture, rural areas and farmers. In particular, income from land transfers will be used primarily for building a new countryside, ensuring that farmers are fully compensated for expropriated land and the costs of their relocation, and subsidizing social safety net payments to farmers whose land has been expropriated. The proportion of income from land transfers that gets spent on farmland development and rural infrastructure projects will be gradually increased. We will vigorously support the establishment of a sound system of rural financial services. We will substitute rewards for subsidies and introduce other measures to encourage not only farmers but all sectors of society to increase investment.

3. We will strongly support social programs such as education, medical and health care, and the social safety net.

We will ensure that the development of education is given priority. The central government has allocated 156.176 billion yuan to develop education, an increase of 45.1%. We will institute free compulsory education in all urban and rural areas. The central government has allocated 8.4 billion yuan for trials to exempt all urban students from paying tuition and miscellaneous education fees for compulsory education beginning in the 2008 fall school term. A total of 57.04 billion yuan, an increase of 20.56 billion yuan, has been allocated to better guarantee funding for operating expenses for rural compulsory education. Beginning with the 2008 spring school term, we will increase subsidies for providing free textbooks, increase allowances as appropriate for students from poor families living on campus, and raise the level of public spending per student in rural primary and secondary schools. We will raise the standard for calculating the unit price for repairing or renovating rural primary and secondary school dormitories in the central and western regions, with special consideration given to schools located in areas with harsh conditions such as bitter cold. A total of 22.3 billion yuan, an increase of 12.5 billion yuan, has been allocated to fully fund assistance to students from poor families attending regular undergraduate institutions, vocational colleges and secondary vocational schools. We will continue to carry out and improve the policy of providing assistance to students from poor families attending regular senior secondary schools in the central and western regions. The policy of providing free education to education students at normal universities directly under the Ministry of Education will be continued. Where financial conditions allow, local governments may also provide free education to education students.

We will promote reform of the medical and health care system. The central government has allocated 83.158 billion yuan to be spent on medical and health care, an increase of 25.2%. A total of12.61 billion yuan has been allocated to support improvements in the system of public health services. The control government has allocated 56 billion yuan (including 30 billion yuan of reserves left over from 2007) to deepen reform of the drug and health management system and to establish systems for public health, medical services, guaranteeing the provision of medical services and ensuring the supply of medicines. A total of 25.3 billion yuan has been allocated to fully implement the new rural cooperative medical care system. The base funding will be raised from 50 yuan to 100 yuan per person per year over a two-year period, with the amount of public assistance per person raised from 40 yuan to 80 yuan per year. In the central and western regions the standard for funding assistance from the central budget will be raised from 20 yuan to 40 yuan per person per year. We will expand the trial for providing basic medical insurance to urban residents by gradually including urban residents without regular employment. The level of government subsidies will be raised in step with the new rural cooperative medical care system to form a three-way funding mechanism consisting of the central government, local governments and individuals. Support will also be provided to improve the medical assistance system covering both urban and rural areas and better coordinate it with other related systems.

We will improve the social safety net. The central government will spend 276.161 billion yuan, a rise of 24.2% in comparable terms, on the social safety net and employment efforts. We will support the complete establishment and improvement of the system providing cost of living allowances for rural residents by raising the allowances from 30 yuan to 50 yuan per person per month and increasing the central government's contribution to the allowances from one third to 70%. An allocation of 26.11 billion yuan has been made to support improvement in the system providing cost of living allowances for urban residents by doubling the allowance standard that had been raised by 30 yuan per person per month in 2007. A total of 126.3 billion yuan has been allocated to improve the basic old-age insurance system for enterprise employees, and expand the pilot project to fully fund their personal old-age pension accounts. Beginning January 1, 2008 these pensions will be increased by an average of 100 yuan per person per month. Basic old-age pensions for other people will be increased as appropriate based on this figure. These will include retired scientists and engineers who hold senior professional titles and people who retired early and receive low basic old-age pensions. The central government will provide an appropriate amount of support for the central and western regions and old industrial bases. In accordance with the Law on Promoting Employment of the People's Republic of China, fiscal and taxation policies, including tax and fee reduction or exemption, interest subsidies for guaranteed small loans and allowances for job training, will be implemented to promote employment. Support will be continued for the policy-based closures and bankruptcies of SOEs, the pilot project for reforming collectively owned factories in northeast China and the central region, and efforts to improve working and living conditions of people relocated to build reservoirs.

We will give assistance to solve the housing problems of low-income urban families. The central government will appropriate 6.8 billion yuan for housing funding, an increase of 1.7 billion yuan. This funding will be used to actively raise funds through sources and channels stipulated by the State Council, carry out the favorable tax and fee policies for the construction of low-rent housing, and accelerate the establishment of a sound guarantee system for such housing. We will improve the matching-fund housing system.

We will develop the system of public cultural services. The central government has allocated 1.2 billion yuan to ensure free visits to nonprofit museums, memorial halls and national demonstration sites for education in patriotism. It has appropriated 3.4 billion yuan to support key rural cultural projects, such as the project to provide the rural population with access to central radio and television programming through broadcast facilities rather than cable. It has also allocated 4.1 billion yuan to support improvement of the infrastructure of local cultural institutions, protection of cultural heritage sites and faster development of the culture industry. An allocation of 2.42 billion yuan has been appropriated to support the hosting of the 2008 Beijing Olympics and Paralympics. From 2002 to 2008, a total of 17.3 billion yuan was allocated from the central budget to support the hosting of the Beijing Olympics and Paralympics.

We will improve public security. The central government has allocated 9.49 billion yuan in subsidies to help people's courts and public security, procuratorial and judicial organs in financially strapped regions purchase equipment and to support their law enforcement work. Four billion yuan, including one billion yuan of reserves left over from 2007, has been allocated to assist with the costs of processing casework in lower-level people's courts. A total of 2.92 billion yuan has been appropriated to support comprehensive reform of the prison system. We will improve and implement the system of "management and responsibility by level" to guarantee the judiciary's operating expenses and improve the infrastructure of lower-level procuratorial, judicial and public security departments. All operating expenses necessary to carry out important official work of these departments will be guaranteed on the basis of the principle of completely separating revenue from expenditures. After the reform of the method for collecting court fees for bringing suits, a permanent mechanism will be established to guarantee that the courts meet operating costs. We will continue to ensure adequate funds to cover the costs of monitoring product quality and the safety of food and drugs.

4. We will increase support for scientific and technological innovation, energy conservation and emissions reduction.

We will promote scientific and technological innovation. A total of 14.76 billion yuan, an increase of 24%, has been allocated to increase investment in basic research and research in new and high technology. Support for scientific research by nonprofit organizations will be steadily increased. We will support the development of major science and technology infrastructure and national and key national laboratories and make greater use of the role of national bases for scientific research. We will carry out trial programs to closely integrate industry, education and research and develop a technology innovation system. We will ensure smooth progress on major scientific and technological programs. We will support the development of an industrial technology innovation system for modern agriculture. We will provide support for invigorating the domestic major equipment manufacturing industry. We will promote the development of nonprofit and strategic state industries. We will encourage venture capital investment in business startups and support technological innovation in small and medium-sized science and technology enterprises. The scope of enterprises eligible to receive special development funds will be expanded.

We will support energy conservation, emissions reduction and ecological improvement. Allocations from the central budget for energy conservation and emissions reduction total 27 billion yuan, an increase of 3.5 billion yuan. We will substitute rewards for subsidies and support the ten major state energy conservation projects, the building of sewage pipe networks in the central and western regions, and the development of a system for monitoring and supervising emissions reduction and pollution. We will set up a mechanism for closing down backward production facilities. Appropriate assistance and rewards will be provided from the central budget to economically underdeveloped regions. Investment in water pollution control will be increased in the important watersheds of the Huai, Hai, Liao and Songhua rivers, and Tai, Chao and Dianchi lakes. We will implement fiscal and taxation policies to encourage energy conservation and emissions reduction. Investment in projects and special equipment that meet specified environmental conditions, such as being energy-saving and environmentally friendly, will be eligible for corporate income tax reduction or waiver for a set period of time or will be allowed a corporate income tax deduction. We will implement a policy of mandatory government procurement of energy-saving products. VAT on the purchase of equipment that saves energy and reduces emissions will be discounted. We will improve the favorable tax and fee policy for the comprehensive use of scrap and other recyclable materials and resources. We will improve the fiscal and taxation policies for promoting the development of new and renewable energy resources. We will promote the reform of the system of paying for the use of mineral resources, establish a reserve fund system for the sustainable development of resource-based enterprises, gradually set up a sound mechanism for paying compensation for ecological damage, and run trials of a scheme for trading pollution rights in the Lake Tai watershed area. We will support the implementation of the national plan to deal with climate change. On the basis of improving the policy on reforesting farmland, we will support the development of key forestry projects and the protection of key public forests. We will improve the central government system for funding ecological conservation in forests and steadily promote reform of the system of collective forest rights and the management of state tree farms.

5. We will promote fiscal and taxation reforms.

We will deepen the reform of the fiscal management system. We will improve and standardize the system of transfer payments from the central to local governments, raise the scale and proportion of general transfer payments, and increase spending on public services. The central government has allocated 846.702 billion yuan in fiscal transfer payments to local governments, an increase of 137.417 billion yuan or 19.4%. We will improve the method of calculating standard revenue and expenditure items and strengthen support for no-development zones and restricted development zones. We will also encourage these regions to strengthen ecological and environmental protection, and promote development in development priority zones. Fiscal transfer payments to cities that once depended on resources that are now exhausted will be increased to help them gradually solve longstanding social problems. The procedure for examining and approving new transfer payments must be strictly followed to make the distribution scientific. We will continue reviewing current special transfer payments, combine items that have similar purposes and eliminate or reduce items whose term has expired, items of a one-time nature and items that do not need to be retained to meet the needs of macroeconomic regulation. The procedure for introducing policies related to special transfer payments will be standardized to keep the overall load on local budgets within an acceptable range. A total of 44 billion yuan, an increase of ten billion yuan, has been allocated for rewards and subsidies to adjust and improve the incentive and restraint mechanisms for alleviating fiscal problems of county and township governments, and to create a mechanism for guaranteeing minimum fiscal expenditures for counties and townships. We will improve the fiscal systems at and below the provincial level, accelerate the reform to put county public finance directly under the management of provincial governments and township public finance under the management of county governments, and gradually establish a mechanism to direct more revenue toward governments at lower levels in order to better equalize basic public services.

We will promote reform of the taxation system. We will unify the income tax systems for domestic and overseas-funded enterprises, fully implement the new Law on Corporate Income Tax and regulations on its implementation, and ensure that the reform of the corporate income tax system proceeds smoothly. We will continue the trial VAT reform in the old northeast China industrial base and in 26 old industrial cities in the central region. A nationwide implementation plan will be worked out. We will reform the resource tax system. We will implement the new regulations for the tax on farmland used for nonagricultural purposes. We will study measures for combining the urban construction and maintenance tax and education surcharge systems for both domestic and overseas-funded enterprises. We will carry out reform of the individual income tax, raise its earnings threshold, and reduce the tax load on low-income workers.

We will improve the budgetary management system. We will improve the way surplus revenue in the central budget is used. Beginning in 2008, we will in principle consolidate all surplus revenue in the central budget into the central budget stability and regulation fund and incorporate it into the following year's budget rather than finding new ways to spend it. The exceptions to this principle are as follows: increases in expenditures that are required by law, regulations or the fiscal system; necessary expenditures to reduce the deficit or pay long overdue debts; and special one-time expenditures. This will make it easier to ensure that key expenditures are met, that budget management is standardized, and that budget constraints are strengthened. We will carry out comprehensive budgeting, study ways to improve the system of standards for expenditures, improve examination and approval of items, institute rolling management of budgetary expenditure items and increase the number of departments required to report their budgets to the NPC. We will actively carry out trial evaluations of budgetary performance and explore ways to setup a system for publicizing the results of performance evaluations in order to improve the level and quality of public goods and services. Central, provincial, municipal and prefectural governments will extend the reform setting up a centralized treasury payment system to all subsidiary bodies within their jurisdictions that prepare budgets. The reform will gradually expand to include government-managed funds and extra budgetary funds. In order to improve the system for managing the outstanding balance of government bonds, we will energetically promote the reform to make government bonds subject to market forces. We will expand the scope of trials of a budget system for managing state capital. The system for managing state assets held by administrative bodies and government-affiliated institutions will be further improved. Studies will be carried out to establish a standard budgetary system for the social security fund.

We will continue to deepen overall rural reform. The central government has allocated 15 billion yuan to strongly support debt reduction for rural nine-year compulsory education as a starting point for reducing all rural debt. We will look for a way to set up a new mechanism for funding rural public service programs. We will carry out trials of a comprehensive reform to reduce the economic burden on farmers from water fees. Also, the burden on farmers due to regional or industrial differences will be gradually reduced.

We will speed up reform of the income distribution system. We will work hard to get public finance to play a significant role in adjusting the pattern of income distribution. We will gradually increase the proportion of national income going to individuals and raise labor's share of the primary distribution of income. We will adopt fiscal and taxation policies to increase incomes of rural residents, urban recipients of cost of living allowances and other low-income people. We will support the implementation of a minimum wage standard for enterprises, gradually raise it, and setup a mechanism to increase the pay of enterprise employees regularly and to guarantee that they get paid. We will ensure tha tall enterprise employees have basic medical, basic old-age, unemployment, workers' compensation and other insurance. We will support the efforts to strengthen collection of social security contributions and increase the percentage of people contributing. We will increase transfer payments to people in financial difficulties to ease their burden of paying for education, medical services, old-age insurance, housing and fees. We will give the individual income tax a bigger role in adjusting income distribution, improve tax collection for high-income workers, and reduce the tax load on low-income workers. Oversight of income distribution will be tightened for SOEs and state-owned financial institutions, especially in monopoly industries. The pattern of income distribution to civil servants will be further standardized. We will improve oversight and inspection to uncover and strictly deal with any violation of regulations concerning the granting of allowances or subsidies.

We will support the deepening of reform of the banking and related systems. State-owned financial institutions must properly carry out their duty to provide capital, and we will actively yet prudently carry out the reform to convert the Agricultural Bank of China and other key state-owned financial institutions into stockholding companies and transform the China Development Bank into a commercial institution. In addition, we will strongly support reform of the investment system.

III. Managing Public Finance in Accordance with the Law and Strengthening Scientific Management to Ensure Satisfactory Implementation of the 2008 Budgets

To ensure satisfactory implementation of the 2008 budgets, we will take all factors into consideration and comprehensively strengthen fiscal management to make it more scientific and detailed, focusing on the following tasks.

1. We need to standardize budget management. We will make sure that funds are made available for more budgetary items at the beginning of the year. We will work more resolutely to make budget compilation more scientific and accurate. Control over surplus budgetary funds will be tightened. We will gradually set up sound standards for asset allocation and incorporate newly added asset allocation items into departmental budgets. This will create a working mechanism that effectively combines asset management with budgetary management. We will strengthen management of budget implementation to make it more efficient. We will work out a dynamic system for monitoring local government budgets at all levels, and improve the dynamic mechanism for monitoring budgetary funds in the treasury. We will set up a sound mechanism for coordinating the compilation and implementation of budgets. We will stimulate the enthusiasm, initiative and creativity of all departments that compile their own budgets for strengthening the supervision of budget implementation. In addition, all departments must assume responsibility for implementing their budgets. State budgetary supervision and oversight authorities must assume responsibility for overseeing the implementation of budgets.

2. We need to strengthen collection and management of revenue. We will help tax and customs authorities strengthen tax collection and management in accordance with the law. Tax reductions and exemptions will be strictly controlled to resolutely stop and correct unauthorized introduction of tax exemption and reduction policies. These policies are sometimes disguised in the form of first levying taxes, then granting rebates. Preferential fiscal and taxation policies for experimental and development zones will be reviewed and standardized. We will severely crack down on tax evasion, tax fraud and other illegal activities. We will move forward with the pilot project of the electronic tax payment system that connects finance and tax departments, banks and the treasury in a network. We will gradually work out policies and measures for incorporating all extra budgetary funds into budgets. In accordance with the principle of strengthening tax collection and screening fees, we will optimize the structure of government revenue and review all fees and funds and eliminate those that are illegal or unreasonable. We will put the revenue derived from leasing or lending state-owned assets of administrative bodies and from disposing of state-owned assets of government-affiliated institutions under the scheme of keeping revenue and expenditures separate. We will continue to improve the policies for managing non-tax revenue and the system for its centralized collection by the treasury. We will collect and manage taxes in accordance with the law, and collect all taxes due without exception to ensure the sustained, steady growth of government revenue.

3. We need to improve management of expenditures. We must guarantee expenditures in key areas such as agriculture, rural areas and farmers, education, science and technology, medical and health care, and the social safety net. We will work hard to lower our administrative costs. We will strictly curb increases in the expenses for personnel, official car use, meetings, computer networks and entertainment, and limit the construction of new office buildings for Party and government departments. A policy of zero growth will be applied for spending on official visits abroad. Redundant workers will be excluded from the system of unified payment of wages or salaries. Unauthorized departments will also be excluded from the public finance system. Bankcards will be widely used to pay the expenses of official business of central and provincial-level government bodies. We will expand the scale of trials to introduce government procurement and centralized payment from the treasury for special transfer payments and work out an oversight mechanism. We will distribute government funds more scientifically, fairly and transparently. We will improve management of government debts and strictly control new debts to prevent and defuse financial risks. We must bear in mind the "two imperatives" (It is imperative to always be modest, prudent, and free from arrogance and rashness in our work and it is imperative to continue following the principle of hard struggle and plain living, Tr.), tighten financial and economic discipline, resolutely combat extravagance and waste, practice thrift in everything we do, and use funds more efficiently.

4. We need to improve financial legislation. We will work vigorously to create conditions for upgrading mature interim tax regulations into substantive tax laws to improve our system of tax laws. We will do a good job revising the Law on Certified Public Accountants and enacting the Interim Regulations on Transfer Payments, the Regulations on Managing Non-tax Government Revenue, the Regulations on Managing the Lottery, the Regulations on Implementing the Government Procurement Law and the Regulations on Supervising the Operating Budgets for State Capital in Enterprises. We will improve the oversight mechanism for enforcing financial laws and regulations, and make administrative enforcement by financial authorities more effective. We will improve the procedures for approving and supervising items that are subject to administrative examination and approval, and strictly control making new items subject to administrative examination and approval. We will continue to press ahead with research on reform of government accounting. We will improve the financial system of enterprises. We will institute a system of corporate accounting standards in unlisted SOEs and state-owned financial enterprises. We will modify financial rules and accounting standards and systems for government-affiliated institutions.

5. We need to strengthen oversight of public finance. We will set up a sound oversight mechanism for all aspects of public finance, and integrate oversight of operations at all stages from beginning to end. We will strengthen oversight and inspection of funds to be used for education, medical and health care, and the social safety net. Oversight and inspection of the accounting information provided by enterprises, administrative bodies and government-affiliated institutions and of the practices of accounting firms will also be strengthened. We will encourage and support local finance authorities in strengthening their oversight function and improving their financial supervision. We will strengthen oversight and management of certified public accountants and the asset evaluation industry. Financial authorities at all levels must administer public finance in accordance with the law; tighten management; improve internal control mechanisms; willingly accept the oversight by the NPC and local people's congresses at all levels, auditing authorities and the general public; and listen carefully to the suggestions of CPPCC committees. We will improve the democratic decision-making mechanism for public finance and increase public participation in decision-making about public finance. We will implement the Regulations on Making Government Information Public to improve transparency in our financial work. We will accelerate efforts to establish the Government Financial Management Information System to get modern information technology to fully play its role in strengthening financial management.

The year 2008 is the first year to fully implement the strategic arrangements made at the Party's Seventeenth National Congress and the middle year of the Eleventh Five-Year Plan period. It is extremely important to implement the budgets and do all our public finance work well. Under the leadership of the Party Central Committee with Comrade Hu Jintao as General Secretary, let us hold high the great banner of socialism with Chinese characteristics, follow the guidance of Deng Xiaoping Theory and the important thought of Three Represents, and thoroughly apply the Scientific Outlook on Development. Let us forge ahead in a pioneering spirit, work in a down-to-earth manner, and energetically contribute to achieving further success in building a moderately prosperous society in all respects.