IMF says China’s com­plex fis­cal sys­tem needs over­haul

The Star Malaysia - StarBiz - - Front Page -

BEI­JING: China’s sprawl­ing lo­cal gov­ern­ment fi­nanc­ing sys­tem needs “cru­cial” re­forms to in­crease con­sump­tion, build pros­per­ity and en­cour­age eco­nomic re­bal­anc­ing, the In­ter­na­tional Mon­e­tary Fund (IMF) said.

Among the IMF’s rec­om­men­da­tions is to fund lo­cal gov­ern­ments by im­pos­ing re­cur­ring prop­erty taxes and adding lo­cal sur­charges to na­tional in­di­vid­ual in­come taxes.

China’s fis­cal sys­tem is the world’s most de­cen­tralised, with lo­cal bodies re­spon­si­ble for 85% of gov­ern­ment spend­ing, the fund said in a re­port, cit­ing the breadth across 31 pro­vin­cial level gov­ern­ments, 334 pre­fec­tures, 2,850 coun­ties, 40,000 town­ships and 900,000 in­for­mal vil­lage ju­ris­dic­tions.

In­clud­ing off-bud­get spend­ing by lo­cal gov­ern­ment fi­nanc­ing ve­hi­cles brings the ra­tio up to 89% of all pub­lic ex­pen­di­tures.

Such a com­plex net­work must be over­hauled to bet­ter de­liver ser­vices, in­crease so­cial spend­ing and re­duce re­gional dis­par­i­ties, Philippe Win­gen­der, an econ­o­mist in the tax pol­icy divi­sion of the fis­cal af­fairs depart­ment, said in a pa­per re­leased on Satur­day. Rev­enue changes are needed to re­duce risk from “ex­ces­sive sub-na­tional bor­row­ing” and in­crease ef­fi­ciency.

“These re­forms will al­low China’s gov­ern­ment to im­prove so­cial safety nets and bet­ter pro­tect cit­i­zens from ad­verse eco­nomic and health shocks,” Win­gen­der wrote.

“In turn, this would im­prove welfare and pro­mote con­sump­tion and eco­nomic re­bal­anc­ing.”

A 2014 bud­get law aimed to im­prove bud­get­ing and in­crease trans­parency and ac­count­abil­ity in lo­cal gov­ern­ment fi­nances by re­quir­ing multi-year spend­ing plans and set­ting con­di­tions for man­ag­ing an­nual deficits and sur­pluses.

— Bloomberg

Cru­cial re­forms: An ae­rial view of Shang­hai. China’s sprawl­ing lo­cal gov­ern­ment fi­nanc­ing sys­tem needs ‘cru­cial’ re­forms to in­crease con­sump­tion, build pros­per­ity and en­cour­age eco­nomic re­bal­anc­ing, the In­ter­na­tional Mon­e­tary Fund says.

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