Transparency seen as the key to budget reform

"The more money a government has, the more difficulties there are for management, and a better management system is needed," said Bai Jingming, deputy director of the Research Institute for Fiscal Science under the Finance Ministry.

According to the budget report, the public revenue and other government revenues will amount to 18 trillion yuan this year, while expenditure is 20 trillion yuan.

The first step, he said, is to extend the cycle for budget planning. "There are ups and downs in government revenue due to fluctuations in the economy, but the growth of government spending is consistent," Bai said.

He said under the annual budget planning mechanism, budget planning is drafted based on an estimate for economic prospects for that year alone, and execution is also reviewed on yearly targets, resulting in a shortsighted and unsustainable fiscal system.

"Governments would spend lavishly when the economy and revenues are good, but, in the face of an economic downturn, they can only borrow to meet the expenditure needs."

Bai said there should be a midterm budget planning mechanism for three years, in addition to annual budget planning, so that the budget planning can be balanced over the year.

A second reform should be to bring in more flexibility into the current fixed expenditure items, such as education, which is regulated to equal 4 percent of the GDP. In total, such items accounted for 47.5 percent of the aggregate fiscal expenditures last year.

Bai said such fixed expenditures are likely to cause a mismatch between expenditure and actual needs. "In some cases, some departments may invent all sorts of unnecessary names to spend the money, when other departments face fund shortages," he said.

While practicing fiscal prudence, there should also be a dynamic monitoring system to make sure that the budget is executed on time. An often criticized phenomenon, resulting from inadequate supervision of budget execution, is the aggressive spending by some local governments during the year-end to meet the appropriation budget.

"An effective budget execution could inject 20 trillion yuan capital to the economic cycle in the form of investment or consumption, which will play a vital role for stabilizing growth," Bai said.

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