Report on China's central, local budgets (2012)
 

II. DRAFT CENTRAL AND LOCAL BUDGETS FOR 2012

1. Current Fiscal and Economic Situations Facing Chinah Our country's economic development faces a more complex situation in 2012, and there will be a significant imbalance between revenue and expenditure.

Regarding revenue, sustained economic growth will lay a strong foundation for revenue growth. However, many uncertainties exist in the global and domestic economic situations, growth in corporate profits will fall, structural tax reductions will be increased, and a higher individual income tax threshold on salaries and adjustments to the tax rate structure will both have a lingering effect on this year's revenue. We will carry out pilot reforms of replacing business tax with VAT, raise the income threshold on special surcharges on oil sales, and extend and expand the preferential income tax policy for small businesses with low profits. Add to this the higher VAT and business tax thresholds implemented last year, and the result is that revenue will fall this year.

As for expenditure, government spending on education needs to be expanded, and considerable increases in government investment are needed to extend coverage of the new old-age insurance system to all eligible yet uninsured rural and urban residents, to increase basic pensions for enterprise retirees and government subsidies to the new rural cooperative medical care system and the basic medical insurance system for non-working urban residents, and to increase investment in low-income housing projects. All these efforts will put great pressure on expenditure.

2. General Requirements for Compiling Budgets and Doing Public Finance Work

On the basis of the central leadership's decisions and arrangements, while compiling the 2012 budgets and doing public finance work, we will comprehensively implement the guiding principles of the Seventeenth CPC National Congress, the third through sixth plenary sessions of the Seventeenth Central Committee, and the Central Economic Work Conference; take Deng Xiaoping Theory and the important thought of Three Represents as our guide; thoroughly apply the Scientific Outlook on Development; keep in mind the theme of scientific development and the main thread of accelerating the transformation of the pattern of economic development; and adhere to the general principle of making progress while maintaining stability in all aspects of our work. We need to follow a proactive fiscal policy; deepen reform of fiscal and tax systems; improve structural tax cut policies; adjust the distribution of national income; further optimize the structure of government spending; increase support for agriculture, rural areas, farmers, education, medical and health care, social security, employment, culture, low-income housing, energy conservation, environmental protection, and underdeveloped areas; strictly limit regular expenditures; and maintain and improve living standards. We need to adhere to the principles of managing fiscal matters in accordance with the law, taking all factors into consideration when making overall plans, and increasing revenue and reducing expenditure; manage public finances in a more scientific manner; use government funds more efficiently; push forward economic restructuring and balanced regional development; promote steady and robust economic development; keep overall price levels basically stable; and maintain social harmony and stability, so we can greet the coming Eighteenth National Party Congress with outstanding achievements in economic and social development.

In following a proactive fiscal policy, we must focus on the following areas.

First, we need to improve structural tax cut policies to reduce the burden on businesses and consumers. We will enforce the revised Law on Individual Income Tax, and implement the policy of raising VAT and business tax thresholds and other policies designed to relieve the tax and fee burden on small and micro businesses. We will implement a preferential policy to halve the income tax on small businesses with low profits. We will carry out pilot projects to replace business tax with VAT, and steadily extend the trials to more areas in order to spur the development of the service sector, particularly the modern service sector. We will reduce tariffs on some imported commodities and increase imports of energy and resource products, advanced equipment, and key parts and components. We will expand trials of a tax on the income of logistics enterprises after deductions, improve the policy on urban land-use tax imposed on land for warehousing major commodities, and eliminate VAT on vegetable wholesalers and retailers, so as to reduce the tax burden on logistics enterprises and those who produce and distribute agricultural products. We will earnestly implement all other tax relief and exemption policies in accordance with the law. We will also review and eliminate some administrative charges on enterprises.

Second, we need to increase people's incomes to boost their purchasing power. We will put into effect a more proactive employment policy, and implement the minimum wage system. We will increase government subsidies to raise the incomes of urban and rural residents, particularly those in low- and middle-income brackets; reduce people's burden of paying for education, medical services, and housing; and increase their purchasing power. We will support the development of goods distribution networks, and create a good consumption environment.

Third, we need to further optimize the structure of government spending to maintain and improve living standards. We need to maintain a large scale of government spending so that we can increase expenditures on ensuring and improving living standards; direct more funds toward the primary level, rural and remote areas, and groups with financial difficulties; and more quickly develop education, medical and health care, social security, employment, low-income housing, public culture, and other social programs. We will optimize the structure of investments to shore up weak links in economic and social development, strictly control new projects to prevent redundant construction, and seriously limit administrative expenses and other regular expenditures to bring down administrative costs.

Fourth, we need to promote economic restructuring and balanced regional development to spur faster transformation of the pattern of economic development. We make full use of the significant role fiscal and tax policies play in economic restructuring, constantly increase government investment, and improve fiscal and tax systems as well as mechanisms that are conducive to transforming the pattern of economic development. We will increase investment in science and technology, optimize the expenditure structure in this area, and support independent innovation and improvements in the core competitiveness of industries. We will push forward energy conservation and emissions reductions, and act more quickly to develop new, renewable, and clean energies. We will establish a sound cap-and-trade policy system for pollution rights. We will extend the policy of subsidizing and rewarding grassland ecological conservation to cover all herding and semi-herding counties designated by the state. We will increase financial support for small and medium-sized enterprises, provide them with tax and fee cuts and exemptions, and encourage them to operate prudently and achieve sustained development. We will vigorously support the development of strategic emerging industries and high-tech industries, promote optimization and upgrading of traditional industries, and stimulate faster development of the modern service industry. We will implement the strategy of using major cultural projects to spur the development of the entire industry. We will put into effect fiscal and tax policies that promote balanced regional development, and enhance the ability of areas with financial difficulties to ensure the implementation of all policies devised to improve people's lives. We will expand trials of key small green cities and towns, and vigorously yet prudently move ahead with urbanization.

Taking all factors into consideration, governments at all levels will concentrate financial resources to accomplish several major tasks aimed at maintaining and improving living standards in 2012. First, we will increase education spending to ensure budgetary expenditure on education nationwide accounts for 4% of GDP. Second, we will accelerate the development of the social security system, and make the new old-age insurance system available to all eligible rural and urban residents. Third, we will deepen reform of the pharmaceutical and healthcare systems, increase government subsidies to the new rural cooperative medical care system and basic medical insurance for non-working urban residents, speed up trial reforms in public hospitals, and make medical services more affordable and accessible. Fourth, we will make steady progress in building low-income housing, begin construction on more than seven million units of housing while completing ongoing projects, and help ease housing difficulties of low-income urban residents, first-time workers, and rural migrant workers. Fifth, we will vigorously promote cultural development and prosperity, and ensure that growth in government spending on cultural development exceeds the regular revenue increase, in order to better satisfy people's cultural needs. Sixth, we will increase policy support to strengthen agriculture, benefit farmers, and make the countryside prosperous; support construction of irrigation and water conservancy facilities and other working and living infrastructure in rural areas; stimulate innovation in agricultural science and technology; and promote increases in agricultural production and farmers' incomes as well as the prosperity of the countryside.

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