Clearly defining fiscal relations for building a unified market

The State Council, China's Cabinet, issued a guideline on Monday on further promoting the reform of the financial system.

The guideline, aimed at promoting the establishment of a financial system at and below the provincial level with more reasonable definition of power and responsibility, more standardized allocation of income, more balanced distribution of fiscal resources, and stronger grassroots guarantees, will significantly accelerate the building of a unified national market and promote equal access to public services.

Unless fiscal powers and expenditure responsibilities are clearly defined, it would be difficult for governments at all levels to fulfill their respective responsibilities. Therefore, the guideline makes it clear that fiscal authority at provincial and lower levels should be defined according to authority attributes such as the benefit scope of basic public services and the complexity of information management. It moderately strengthens provincial fiscal authority over education, scientific and technological research and development, basic old-age insurance for enterprise employees, and basic medical insurance for urban and rural residents, and defines such basic public services as public security, municipal transportation, urban and rural construction, and management of public facilities as the fiscal power of city and county governments.

It also stipulates that if superior governments delegate administrative affairs to lower-level governments, adequate funds arrangements should be made to avoid increasing the latter's fiscal burden.

Given that some economically underdeveloped cities and counties need transfer payments from higher level governments to make up for their fiscal insufficiency, this requires more precise use of transfer payments. To this end, the guideline aims at clarifying the positioning of various transfer payments, optimizing the structure of transfer payments, and scientifically allocating all kinds of transfer payment funds.

The guideline requires that transfer payment funds should be allocated in line with the cost of basic public services provided by lower-level governments. The principle of placing equal emphasis on incentives and constraints is conducive to boosting the enthusiasm of local governments and improving the efficiency of the use of transfer payment funds.

The document also mentions other important aspects. However, considering the huge difference in conditions of provinces, it is necessary to formulate implementation plans according to local conditions within the framework of the central authorities and refine policy measures to ensure the implementation of relevant reform measures.