SCIO briefing on 'high-quality achievements during the 14th Five-Year Plan period': Fiscal reform and development

South China Morning Post:

What progress has been made regarding fiscal and tax reforms during the 14th Five-Year Plan period? Looking ahead, how will you strike a balance between the needs of economic development and the goal of stabilizing tax revenue sources during the 15th Five-Year Plan period? And how will the fiscal relationship between the central and local governments be improved? Thank you.

Lan Fo'an:

I'd like to invite Mr. Liao to answer your questions.

Liao Min:

Thank you for your questions. Deepening fiscal and tax system reform is not only an important part of comprehensively deepening reform but also a necessary requirement to ensure the smooth progress of reforms in other areas. During the 14th Five-Year Plan period, fiscal departments have adhered to deepening fiscal and tax system reform as a core work priority, energetically and steadily implementing various reform tasks in an orderly manner. This has accelerated the formation of a more favorable system where budget management is better conceived, the tax system is more refined, and the fiscal system is better-rounded, providing institutional support for Chinese modernization and high-quality development. Next, I will address these three aspects in brief.

First, we have identified revenue, expenditure and management as the three focuses, generating benefits through budget system reform. In terms of revenue, the main focus is on strengthening the overall planning of fiscal resources. Over the past four years, central government transfers from government fund budget and state-owned capital operation budget into the general public budget have reached a level more than 10 times that of the 13th Five-Year Plan period. This has strengthened the central government's fiscal regulation to support socioeconomic development. We have established a nationwide coordination system for pension insurance, with interprovincial transfers reaching 253.3 billion yuan in 2024, ensuring timely and full disbursement of pension payments. On the expenditure side, the main focus has been on optimizing the expenditure structure. We have leveraged zero-based budgeting reform as a key tool, allocating resources where they are needed most according to actual needs and priorities, and ensuring that Party and government agencies practise austerity. Many central departments and provincial governments are actively exploring this approach. Through zero-based budgeting reform, they are dismantling entrenched spending patterns, consolidating special-purpose funds, pooling fragmented funds into unified allocations, and strengthening financial support for major strategic initiatives. In terms of management, the primary focus has been on enhancing the efficiency of fund utilization. We have strengthened dynamic monitoring of the entire chain of fund usage, reinforced budget reviews and performance evaluations, and ensured that spending is effective, with ineffective spending held accountable.

Second, we have focused on three core functions of promoting high-quality development, ensuring social equity and strengthening market unity, adding vitality to the economy and society through tax system reform. For example, in terms of high-quality development, we have fully implemented pilot reforms to convert water resource fees to taxes and advanced the inclusion of volatile organic compounds within the scope of environmental protection tax collection. These efforts have strongly promoted the green transformation of the economy and society. Regarding social equity, we have improved the personal income tax system. In 2022, we introduced a special deduction for child care expenses for children under 3 years old. In 2023, we substantially increased the deduction standards for three items supporting older people and children, benefiting a cumulative total of over 67 million people. Additionally, in terms of market unity, we have standardized tax and fee preferential policies, expedited tax legislation, and established a fair and unified tax environment. Of China's 18 existing tax categories, 14 have already been formally codified through legislation.

Third is regarding fiscal system reform, an area that is also of great concern to the market. We have anchored our efforts around three key goals — clearly defining fiscal powers and responsibilities, improving coordination of financial resources, and promoting balanced regional development — so as to generate new momentum through fiscal reform. We have better leveraged the initiative of both central and local governments, appropriately increased the central government's fiscal powers and expenditure responsibilities, and improved the system for shared fiscal powers to clarify powers and responsibilities. We have accelerated reform of the fiscal system below the provincial level, promoted the downward shift of financial resources, continuously strengthened fiscal capacity at the primary level, and improved the coordination of financial resources. We have also optimized the transfer payment system by establishing and improving mechanisms such as the incentive and constraint mechanisms for transfer payments that promote high quality development, and cross-regional ecological compensation mechanisms. As a result, the management of transfer payments has become more scientific, standardized and effective, significantly promoting the regional balance. Since the 14th Five-Year Plan period (2021-2025), central government's transfer payments to local governments have reached nearly 50 trillion yuan, helping local authorities better implement the decisions and arrangements of the CPC Central Committee.

The Third Plenary Session of the 20th CPC Central Committee made clear arrangements for deepening reform of the fiscal and tax systems. We have formulated an implementation plan and annual work schedules, and are making solid progress in advancing the reform. Going forward, we will introduce each reform measure as soon as conditions are ripe and circumstances allow. Thank you.