Public finance played an effective role in macroeconomic regulation. As necessitated by the changing economic situation, we shifted from a proactive fiscal policy to a prudent one and reduced the central government deficit considerably. We improved regulatory measures in a timely and targeted way, which in turn promoted sound and rapid economic development.

Public finance played a visible role in ensuring the wellbeing of the people and improving their lives. We improved the structure of expenditures. More financial resources were expended on improving people's lives. Vigorous efforts were made to establish long-term mechanisms for ensuring the wellbeing of the people and improving their lives. All this contributed to the building of a harmonious society. Between 2003 and 2007, 2.43 trillion yuan of national revenue was spent on education, 629.4 billion yuan on medical and health care, 1.95 trillion yuan on the social safety net and 310.4 billion yuan on culture and sports. Compared with the preceding five years, the above expenditures are increases of 126%, 127%, 141% and 130% respectively. The central government spent a total of 1.6 trillion yuan on solving problems related to agriculture, rural areas and farmers.

Major progress was made in fiscal and taxation reforms. The agricultural tax, livestock tax and special product tax were fully rescinded, and the tax and fee reform in rural areas successfully entered a new stage of overall rural reform. The reform of the export tax rebate system obtained significant success. The taxation system was further improved, and various reforms in the budgetary system were deepened. Improvement was made to the financial system, and reform of the income distribution system steadily advanced.

Steady progress was made in the standardization of financial management and oversight. Budgetary preparation and implementation were improved. Management of state-owned assets by administrative bodies and government-affiliated institutions was gradually strengthened. Much progress was made in running fiscal affairs through legal means. The financial accounting system was improved; the financial oversight mechanism was strengthened, and the computerization of financial management was accelerated.

At the same time, we are fully aware that there still exist problems concerning public finance work. Budgets are crudely prepared, and they are not scientific and accurate enough. The fiscal systems at and below the provincial level need further improvement, the transfer payment system is not yet sufficiently standardized, and some counties and townships are still experiencing financial difficulties. The structure of taxes and fees is not reasonable. The proportion of non-tax revenue in some localities is still too high. The fiscal expenditure system needs to be improved, and support to weak links including agriculture, rural areas and farmers needs to be increased. Fiscal management needs to be more meticulous. There is still serious loss and waste. The legal framework of public finance is weak. The risk of liabilities in public finance cannot be overlooked. We need to give these problems our full attention and take further measures to solve them.

II. The Draft Central and Local Budgets for 2008

The overall requirements for preparing the budgets for 2008 and doing financial work are as follows. We must fully implement the guidelines set out at the Seventeenth National Congress of the CPC and the Central Economic Work Conference. We must hold high the great banner of socialism with Chinese characteristics, take Deng Xiaoping Theory and the important thought of Three Represents as our guide, and thoroughly apply the Scientific Outlook on Development. We must work to increase revenue and reduce expenditures, take all factors into consideration, leave some leeway, maintain a reasonable scale of revenue and expenditures, improve macroeconomic regulation, and concentrate on economic restructuring and changing the pattern of development. We must adjust and improve the structure of expenditures, strictly control regular expenditures, and concentrate on ensuring the wellbeing of the people and improving their lives. We must deepen fiscal and taxation reforms and establish sound fiscal and taxation systems that are conducive to scientific development, focusing on improving the public finance system. We must handle financial matters in accordance with the law and make management more scientific, focusing on improving the performance of public finance management. We must let the function of public finance fully play its role, promote scientific development and social harmony, and make contributions to achieving new successes in building a moderately prosperous society in all respects.

In accordance with the above general requirements and our expectations for economic and social development, the major budgetary targets for 2008 are as follows. Total national revenue is targeted at 5.8486 trillion yuan, 718.197 billion yuan or 14% more than in 2007 (same for below). This sum is made up of 3.1622 trillion yuan collected by the central government, an increase of 14%, and 2.6864 trillion yuan collected by local governments, an increase of 14%. National expenditures should total 6.0786 trillion yuan, a rise of 1.12206 trillion yuan or 22.6%. This sum is made up of 1.32052 trillion yuan of expenditures disbursed by the central government, up 15.4%, and 4.75808 trillion yuan disbursed by local governments, up 24.8%.