II. The Draft Central and Local Budgets for 2007

In light of the overall arrangements of the central authorities for our work in 2007 and the new situations we face, our general philosophy for formulating the budgets and deciding on financial tasks for 2007 is to take Deng Xiaoping Theory and the important thought of Three Represents as our guide and conscientiously implement the guiding principles of the Sixteenth National Congress of the Party, the third through sixth plenary sessions of its Sixteenth Central Committee, and the Central Economic Work Conference, completely put into practice the Scientific Outlook on Development, speed up the building of a harmonious socialist society, strengthen regulation, improve measures, continue to follow a prudent fiscal policy, and work hard to promote sound, rapid economic development; put people first, give priority to key areas, adjust and optimize the structure of expenditures, and strive to support social development and solve problems in the people's lives; increase efforts to improve public finance systems and standardize the government fiscal management systems at and below the provincial level and make basic public services of different regions more uniform; boldly explore, dare to make innovations, actively work to deepen reforms and improve fiscal and tax systems and mechanisms in order to better enable everyone to enjoy the fruits of reform and development and the benefits of public finance.

In line with the above philosophy, the major budgetary targets for 2007 are set as follows. Total revenue in the central budget should reach 2.442108 trillion yuan, an increase of 318.877 billion yuan or 15% over the amount for 2006. This figure includes2.35903 trillion yuan collected by the central government, an increase of 314.053 billion yuan or 15.4% over total 2006 revenue (This exceeds the 42 billion yuan projected by the tax and customs authorities for tax revenue. If this goal is not met, the difference will be made up through the central budget stability and regulation fund.), and 83.078 billion yuan turned over by local governments, up 4.824 billion yuan or 6.2% from the amount of 2006. A total of 42 billion yuan will be placed in the central budget stability and regulation fund. Expenditures in the central budget should total 2.687108 trillion yuan, a rise of 338.882 billion yuan or 14.4%. This figure includes 1.1062 trillion yuan of expenditures for the central government, up 107.044 billion yuan or 10.7% over the total for 2006, and 1.580908 trillion yuan in tax rebates and transfer payments to local governments, up 231.838 billion yuan or 17.2%. Expenditures still exceed revenue in the central budget, leaving a deficit of 245 billion yuan. The outstanding national debt in the central budget should not exceed 3.786553 trillion yuan, an increase of 248.385 billion yuan. Total combined revenue in the draft central and local budgets for 2007 is 4.406485 trillion yuan, 533.423 billion yuan or 13.8% more than that for 2006. Total expenditures in the draft central and local budgets amount to 4.651485 trillion yuan, up 630.169 billion yuan or 15.7%. The revenue growth rate is expected to be higher than the forecast rate for economic growth. This takes into account both the trend of rapid economic and social development and the actual increases in revenue of recent years, as well as various other factors that will lower revenue. Setting the target at this level is a reasonable and sound step.

It should be pointed out that the draft budgets and their targets for 2007 submitted to this session were formulated according to the new classification system for government revenue and expenditure items. To make it easier for you to examine the budgets, we have made corresponding adjustments in the data from the implementation of the 2006 budgets according to the new classification system and included them in this year's draft budget report.

Arrangements for major central government expenditures and major fiscal and tax policies for 2007 are as follows.

1. We will continue to decrease the central government deficit by an appropriate amount, and adjust and optimize the orientation and structure of government investment. Effective macroeconomic regulation is an objective necessity for steady, rapid economic development. In accordance with the guiding principles of the Central Economic Work Conference and the current state of economic development, we have set the central government deficit at 245 billion yuan, 50 billion yuan less than the figure in the 2006 budget. The estimated ratio of debt to GDP will continue to drop, falling to 1.1%. Total central government investment is set at 130.4 billion yuan, 15 billion yuan more than the 115.4 billion yuan total in the 2006 budget. Total investment in bond-financed items has been trimmed to 50 billion yuan, 10 billion yuan less than in 2006, and total capital construction investment financed through budgetary allocations has been raised to 80.4 billion yuan, an increase of 25 billion yuan over the amount in the 2006 budget. We are further adjusting the emphasis and structure of items funded through bonds and central budgetary allocations to give more preference to weak links in economic and social development, focusing on improving rural public services.

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