No tightening of the purse strings

Spending on social security and increasing employment registered the biggest proportion of total spending in 2013 at 655.08 billion yuan, an increase of 13.9 percent.

By the end of 2012, all of China's urban and rural residents had been incorporated into the government's pension scheme, ensuring that 130 million rural residents above 60 now receive a monthly pension.

Education spending also saw a new high. According to China's guidelines for education reform, which were released in 1993, spending on education should account for 4 percent of the country's GDP by the end of the 20th century. This goal, however, was not reached until 2012. Spending in education will grow by 9.3 percent this year, higher than expected GDP growth.

Sun Lijian, vice dean of the School of Economics at Fudan University, calls China's spending on education of great significance. Sun says China must continue to strengthen education to meet the needs of a more knowledge-based economy.

Spending on agriculture, rural areas and farmers also remains strong in an effort to support the development of agricultural infrastructure, facilitate scientific innovation, boost the development of specialized industries and guide private capital toward modern agriculture.

According to MOF figures, in the past fives years alone, the central government had spent a total of 4.47 trillion yuan on rural areas, at an average annual growth of 23.5 percent. This has greatly boosted economic and social development in rural areas and the growth of farmers' incomes.

In the 2013 budget, the central government's spending in agriculture, rural areas and farmers will reach 1.38 trillion yuan, up by 11.4 percent over the previous year. Dai says the spending will be mainly used to support agricultural production, offering subsidies to farmers to grow grain or purchase machinery and tools and facilitate the development of education and healthcare in rural areas.

The 2013 budget report also stressed the need to control the country's growing air pollution crisis, particularly in cities like Beijing. China's eastern region has suffered from heavy pollution, spurring more urgent calls for better protection of the environment. According to the budget report, in 2013 the central government will spend 210.13 billion yuan in energy conservation and environmental protection, an increase of 18.8 percent. The increase ranks second highest after that of healthcare, which will see spending increased by 27.1 percent in 2013.

Problems

The central government's fiscal revenue is expected to increase by 7 percent in 2013. Whether this increase will be realized will decide how the proactive fiscal policy is implemented. In the first two months this year, fiscal revenue only rose by 1.6 percent, arousing some concerns.

In the 2012 budget, fiscal revenue was planned to increase 9 percent, 11.8 percentage points lower than the revenue in 2011. The actual growth of fiscal revenue in 2012 stood at 9.4 percent.

According to the MOF, there are several reasons for slower revenue growth. First, economic growth slowed and corporate profits declined. In 2012, the growth of industrial added value and profits, along with that of fixed-asset investment, retail sales of consumer goods as well as imports all fell compared with 2011. All the above are important sources of government tax revenue.

Second, price hikes declined. Compared with 2011, the growth of consumer price index declined by 2.8 percentage points and the growth of producer price index dropped by 7.7 percentage points in 2012, and the purchasing price index for industrial products dropped by 1.8 percent in 2012. This reduced revenue from turnover taxes based on prices.

Third, the government intensified efforts to introduce structural tax cuts, therefore revenues from value-added tax, business tax, corporate income tax, individual income tax and tariffs, particularly the tax revenue for the Central Government, were reduced.

All the factors leading to slow fiscal revenue growth are still at work in 2013, hence the government faces pressure to balance fiscal revenue and spending. Dai said that if necessary the government can raise the budget deficit and expand the scale of Treasury bonds in order to meet spending targets and maintain sustained economic growth.