According to the first economic work conference held in December last year, a new round of reform of the financial system is needed.
However, this reform must address several issues.
First of all, the relationship and boundaries with the market are not clear, and the bottom-line responsibility is constantly expanding, creating a contradiction between limited financial resources and unlimited spending, leading to financial difficulties.
Second, the division of rights and responsibilities between local governments and localities is unclear, and the responsibilities and expenditures borne by local governments are excessive, and expenditures are far lower than the international average.
Under a system in which decisions are implemented by local governments, local debts continue to rise.
Third, the local taxation system is not perfect, and the allocation of financial resources nationwide is unreasonable, so it is necessary to establish an incentive mechanism to better mobilize local enthusiasm.
In addition, transfer payments are not regulated. In particular, the scale of transfer payments for shared businesses between ** and local governments is large.
In addition, the reform of the financial system below the provincial level needs to be further deepened, and the financial system below the provincial level in different regions is not standardized enough.
A couple of challenges. In the short term, the new round of fiscal reform needs to solve the problems of declining macro tax burden, tightening fiscal revenue and expenditure, increasing local debt risk, and land finance problems.
In the medium term, China needs to ensure fiscal sustainability through institutional reforms to avoid fiscal crises.
In the long run, China needs to build a new fiscal system that serves the national agenda, including shared prosperity, high-quality development, a unified market, and coordination between development and security.
To do this, the state needs to incentivize all parties, including **and local**, businesses and scientists, by reshaping the incentive and regulatory system to achieve a balance between efficiency and fairness, and improve fiscal sustainability.
On the whole, the core of the reform of the financial system is the issue of functions.
Clarifying the boundary between the best functions and the market mechanism is the premise of a new round of financial system reform.
The "tight balance" of China's fiscal situation is rooted in the contradiction between limited fiscal resources and unlimited fiscal expenditure responsibilities, which is partly due to the increasingly blurred boundaries between China and the market, or the expanding responsibilities of China, which are reflected in fiscal activities to resolve economic and social risks.
To deepen reform, it is necessary to streamline administration and delegate powers, reduce redundant personnel, and deepen the reform of the administrative management system and the social security system, because fiscal reform needs the cooperation of reforms in other fields.
First, clarify the relationship between the market and the market, and clarify the responsibility and personnel scale.
Deepen the reform of administrative institutions and social organizations, and strengthen management efficiency. A large number of public institutions have either become non-profit organizations, or they have participated in market competition and assumed their own profit and loss responsibilities.
The second is to deepen the reform of the local financial system, gradually delegate authority and expenditure responsibilities to the local government, and reduce local expenditure responsibilities and financial pressure.
The local government has neither the ability nor the motivation to deal with externally strong affairs, nor does it have the ability to gradually improve the vertical management of public security, food and drug supervision, pension insurance and other departments.
It is necessary to establish a performance appraisal system and a financial evaluation system that match the multi-objective governance system to prevent the performance appraisal of the local government from leading to the continuous expansion of local expenditure responsibilities.
Establish an accountability mechanism to assess the effectiveness of policies before and after they are introduced, and prevent risks from other areas from spreading to the fiscal system.
Tax reform. Tax cuts and fee reductions should shift from the pursuit of quantity to the pursuit of results, and structural tax increases should be selected in areas that have little impact on ordinary residents, are conducive to promoting green development, and narrowing the gap between the rich and the poor. It is necessary to rethink and evaluate the effect of large-scale tax and fee reductions, and implement tax and fee reductions according to whether they are conducive to building a new pattern of development, whether they are conducive to scientific and technological innovation, and whether they are conducive to promoting market vitality and economic and social stability.
Establish a more pragmatic local tax system based on the tax-sharing system, promote the reform of individual income tax, reduce the burden on the working masses while strengthening tax collection and management, ensure that the scale of individual income tax continues to expand, and better play the role of regulating income distribution.
It is also possible to reform the consumption tax, expand the objects of consumption tax collection from tobacco, alcohol, automobiles, etc., to high-end service industries such as high-pollution, high-energy-consuming, high-end clubs, hotels, etc., and shift the objects of taxation from the production side to the consumption side, and gradually decentralize the tax power to the local governments to enrich local tax revenue.
In addition to tax revenues, the income of property owners should also be included in budget management to reduce the situation in which state-owned resources become the exclusive revenue of some localities.
The state can deepen the reform of the social security system and avoid long-term over-reliance on social security subsidies from the general public budget.
Regulate fiscal expenditures, further optimize the performance and structure of fiscal expenditures, improve the efficiency of expenditures, and make rational use of limited fiscal funds.
Further expand the scope of budget disclosure, improve the timeliness and standardization of budget disclosure, and help taxpayers better supervise.
At present, great progress has been made in the disclosure of the provincial budget, but there are still problems such as untimely, insufficient and non-standard budget disclosure at the lower level.
It is necessary to curb the further growth of local hidden debts, focus on solving the existing hidden debt problems, and improve the debt management system.
For example, we should optimize the inter-regional debt structure, appropriately relax the debt ceiling in urban agglomerations and areas with net population inflows, and strengthen debt performance management to improve the matching degree between liabilities and assets, costs and benefits.
China can also optimize the debt structure, such as increasing debt, reducing the issuance of local debt and local special bonds, and issuing long-term treasury bonds for construction.
The author of this article is Chief Economist of Yue Kai**.
These views do not necessarily reflect the views of China**.