The Budget Law is China’s most important legislation concerning people’s livelihood, and the revision of it has caused wide attention. On November 16, 2011, the State Council discussed and passed “Revised Draft of the People’s Republic of China’s Budget Law”, unveiling China’s new age of a “Budget State”. In late December of 2011, the 24th session of the Standing Committee of the 11th National People’s Congress finished the first reading of the revised draft. This paper will discuss several basic issues in budget law revision.
I. Value and purpose of revising the Budget Law
The value and purpose of a law revision project will generally decide the quality of the legislative effort, avoiding possible blindness and ineffectiveness.
1. The value of budget law revision
In jurisprudence, legal value consists of terminal value and process value.
(1)Terminal Value of the budget law revision includes following aspects:
Firstly, budget occupies an important position in public finance, and the revision of the Budget Law would set up a solid foundation for the construction of public finance. The coordination and balancing between civil rights and state power are a basic starting point for constitutionalism; while within such a constitutional institution, the essence of any finance problem will be about an interaction between civil property right and government’s financial power. Finance in its nature could be interpreted as an allocation of resources by using public power, and the contemporary democratic politics and market economy require a public feature in finance itself. Budgetary system plays an important role in public finance, and the budget is an operational mechanism or basic institutional framework of public finance. Public finance is a finance system based upon modern budget that could be understood as finance in institutional sense. Seen from this perspective, the budgetary legal system plays an important role in public finance system. Therefore, we should pay attention to various basic requirements of public finance in revising the Budget Law, for instance, finance democracy, financial law and financial improvement.
Secondly, the government’s power should be reined in through the budget law revising efforts. Government without budgetary restraint can hardly be named as a government ruled by law and public fiscal budget in its essence a restraint on government activities and powers. The openness of budget will be a foremost concern. Openness and transparency are the best forms of restraint on the exertion of budgetary power in a bid to regulate government’s fiscal activities. Thus, this time of budget law revision will pay special attention to relevant mechanism designed to secure budget openness and strengthen the supervisory power of people’s congress on various levels.
Thirdly, the revision of Budget Law should conform to practical need. The current Budget Law has played an important role during past years in organizing budgetary revenues, planning budgetary expenditures and strengthening budgetary supervision since its introduction in 1994. However, the Budget Law was legislated in a time when a planned economy was being transformed into market economy, in which process institutional and conceptual barriers were inevitable, with a high level of difficulty in interest adjustment. Seen from today’s perspective, the Budget Law left room for improvement in legislative and law-enforcement skills, for which reason it can hardly offer enough legal support to the public finance system of the country. Therefore, when we are reviewing the historical significance of the Budget Law, we should realize that its revision is extremely urgent.
(2) Process value of Budget Law revision.
The Budget Law is the most important piece of legislation concerning people’s livelihood. As Wu Bangguo, the chairman of Standing Committee of the National People’s Congress, has stressed that legislations concerning people’s livelihood should be made in an open way, what would be termed as “opening legislation” proposed by the people’s congress in recent years. Such a way of stressing openness and transparency in legislative process is expected to overcome the abuse of ministerial and departmental powers in the exertion of their delegated legislative authority, promoting at the same time the democratic rule-of-law construction in terms of legislation. Therefore, we should insist on “opening legislation” in law-revising efforts to reflect democracy, openness and transparency of the country’s legislative process, which itself is important pursuit of value.
In pursuing “opening legislation”, the communist party of China and our government show great faith in themselves in reconciling complicated social contradictions and great social problems. The Budget Law regulates budget revenues, budget expenditures and budget management, all of which are of great concern to the livelihood of people. To some degree, it reflects complicated social contradictions and significant social problems. Thus, we believe that relevant authorities of the state would insist on principle of opening legislation and democratic legislation, soliciting public opinions through various ways in a bid to make the revised budget law a piece of good legislation and realize rule-of-law in the country.
2. Purpose of revising the Budget Law
We may approach the budget law revising effort from two aspects: on the one hand, the Constitution of China, its making and development, has a specific background against which its legal and economic features have been relatively weakened, offering insufficient foundation to budgetary system. The Budget Law was design to improve the situation, but with unsatisfactory operability in solving practical budgetary problems. Moreover, some institutional arrangements in the Budget have failed our expectations, a situation that could only be redressed by law-revising efforts. On the other hand, we should pool our legislative resources to solve urgent and significant problems against the background of a lack of legislative resources and techniques. More concretely speaking, the macro-purpose of this time of budget law revision might be the problem of budgetary openness or the bond-issue problem of the local government. We think that the first problem should be prioritized in view of the Budget Law’s position of legislation concerning livelihood of people, and the second problem, namely the issue of government bond should be temporarily postpones.
II. Disclosure of budgetary information
The public disclosure of budgetary information will be conducive to ensuring the right to know, the right of participation and right of supervision of the general public to promote local budget management. Disclosure of budgetary information is a basic demand of public finance as well as important content of anti-corruption campaign. The key of budget law revision lies in reasonable allocation of budgetary power between legislative and executive organs.
Legislative organ is expected to hear from the people. Guaranteeing the effective exertion of the budgetary power of the people’s congress is a requirement of the principle of financial democracy, which is a reflection of budget openness and in essence, openness to the general public.
The government has the power of making budget plans due to the special and technical features of the public finance activities, as well as the social attention to government’s effectiveness. However, modern political system empowers the legislature to pass or veto the budget plan and to supervise the implementation of the budget because the government should be restrained in the process of exertion of its powers. The expansion of administrative power becomes a popular phenomenon in administration of modern state, which may result in ineffectiveness of a supervisory system with a budget system as its core. Article 12 of the current Budget Law sets forth a decision-making right and a supervisory right of the National People’s Congress. However, in practical budgetary activities, there would be a large room for improvement in budget drafting, censoring, implementing and supervising process, a task that would be left to the current revising efforts, for example, we should adopt item-by-item censoring and improve budget drafting procedure to ensure budgetary power of the legislature.
1. Transforming combined censoring into item-by-item censoring
The current censoring model features a simplified procedure, but the question is how the people’s congress is going to vote if only part of the budget draft has been considered unreasonable. If the budget draft is passed, the unreasonable part will jeopardize the implementing effect of the next year’s budget; if the budget draft is vetoed, the result will be similar. In contrast, the item-by-item censoring and approval mechanism may solve the above problems and improve the scientific aspect of the procedure. The unreasonable part in the proposed budget draft might well be vetoed, but the rest of the budget plan will be passed. By this way of censoring model, the representatives of the people’s congress are more likely to vote against the budget plan, bring more pressure to the budget drafting authority and speeding the process of budget reform. It should be noted that the item-by-item censoring model should also be equipped with a remedial mechanism that could be activated when veto power is used. The item-by-item censoring and approval system is expected to enhance the supervisory and veto powers of the people’s congress since no veto power has been exerted so far in the current budget model.
2. Revising power should be entrusted to standing committees of the people’s congress at different levels
This is a also a means to made up the original budget censoring practice of “passing it all, or all vetoed.” Countries with advanced budget system would always make explicit regulations about a remedial power of the congress in revising the budget draft in their constitutions or budgetary laws. Therefore, a power of revising the budget plan should be given to the people’s congress at different levels and their standing committees, a practice reflecting the democratic constitutionalism and an important institutional arrangement restraining the power of the government. Concerning the operability of the institutional design, we suggest that the people’s congress should cautiously use its remedial power in revising the budget draft submitted to its for approval and maintain the original balanced budget.
3. Strengthening the supervisory role played by the people’s congress
Budgetary system is the core of public finance that could be defined as “pooling of the money of the general public, and providing welfare to the general public.” An institution should be established to reflect the general public’s appeal of interests as required by the public finance. The people’s congress and its standing committee consisting of elected representatives would be responsible for making fiscal and tax laws, passing budget plans, in order to achieve public and transparent fiscal income and expenditure. The disclosure of budget information requires that the people’s congress should play a vigorous supervisory role in the whole process of the budgetary activities. This supervisory role should be all-inclusive, including examining the budget draft, supervising the implementation of the budget plan and the final accounting of the revenue and expenditure. In the current Budget Law, we read provisions about the supervisory power of the people’s congress, but its effects are far from being satisfactory. On the one hand, the people’s congress convenes with only short durations but with numerous agenda items. The budget draft submitted by the government to the people’s congress would usually be a simplified version without concrete and detailed figures, which may cause trouble for the congress’s representatives to censor the budget draft especially due to ambiguous terms like “other expense” and “special expenditure”. On the other hand, specialized terms and formation of the budget draft may also cause trouble for the congress representatives to understand properly the content. More improvement on this regard should be made to better the exertion of the supervisory power of the people’s congress.
4. A boundary between effective disclosure of budget information and state secret
The budget information is expected to be made available to both the legislature and the whole society. The Budget Law should establish a multi-dimensional supervisory mechanism against the government’s budgetary activities through self-supervision of the governmental departments, public supervision, mass media supervision and legislative supervision. The revision of the Budget Law has adopted a principle of “making the budget information about governments and departments at different levels, except for those that are concerned with state secrets, available to the public and the society.”
Regulations about Disclosure of Government Information of China has made it clear that financial budget and final accounting of government revenue and expenditure of people’s governments at or above country level should be made available to the public. However, the Regulations mention nothing about the detailed scope, extent or means of disclosure of budget information. Generally speaking, government’s budget information made available to the whole society should include the following four aspects: background materials, explanations, and interpretations about the budget; disclosure of the budgetary process from budget drafting, censoring, implementing, altering, and final accounting; disclosure of approved budgetary information; disclosure of budgetary supervision and its result.
However, there are still two issues deserving our attention: firstly, the “state secret” as mentioned in the budget law draft should be properly interpreted; secondly, the wording and writing of the budget draft should be readable to the representatives of the people’s congress, as well as to the general public.
III. Enhancing the wholeness of budget
The wholeness of budget requires that all fiscal revenue and expenditure in the state budget should be reflected in the budget plan, allowing no exceptional capital flow of the government outside the budget plan. Article 19 of the current Budget Law lists every item of revenue and expenditure in the budget, resulting in two negative effects: firstly, a large amount of extra-budget capital existing outside the budget structure and free from supervision will be against the principle of public finance, and according to a model proposed by western economist Mundell Flemming, extra-budget revenue and expenditure will also result in reduction of consumption and net export, being detrimental to the realization of the macro-economic fiscal function. In reality, China adopts a “report formula” when the government wants to use fiscal revenue over the budget, in which a draft plan will be formulated by the finance department of the State Council that is also expected to make it known to the responsible committee of finance and economy, as well as a working committee of the budget authority. The State Council, after completing the extrabudgetary expenditure plan, will report this to the National People’s Congress, a model that could be termed as “report ex post” and being not line with a basic requirement in Budget Law―“the budget precedes expenditure”.
The revision of the Budget Law should make sure that all revenue and expenditure of the government must be covered by the budget, by which way the exertion of governments’ power is expected to be restrained under a public finance system. Seen from our experience in the past two decades, the scale of extra-budget capital has been largely controlled and reduced, against which background the ultimate abolishment of the extra-budget revenues and a realization of the wholeness of the budget might be an achievable goal. In fact, Xie Xuren, the Chinese Finance Minister said to the standing committee of the National People’s Congress when explaining the revised budget law draft that the “wholeness of the budget should be enhanced.”
IV. Local government bond
In the current budget law revising efforts, one key issue that has aroused more controversy is that whether the local government can issue local bond. The question is much more complicated than it seems. There are two major opinions about the issue: people who are for the idea of issuing local government bond say that the move may help to alleviate financial pressure on local government; however, people who are against the idea of immediate granting of the bond-issuing power say the local government may bear huge debt risks without institutional improvements, for instance, contingency plan in case of financial emergency and local government bankruptcy system. We think the second option will be more reasonable for the following three reasons:
1. Widespread local fiscal deficit
Article 28 of the current Budget law provides that the local government can not issue local government bond, but the provision also leaves room for exceptional case with the wording of “(the issue of local government bond might be permitted) when the law or the State Council states otherwise”. Past experience shows that local governments can hardly maintain financial balance and the local fiscal deficit is widespread across the country. Usually, local governments would borrow from the central government that may sometimes issue government bond on behalf of the local debtors. Central government may allocate in advance a certain percentage of shares from the total national bond for covering the expenditures of local government. This practice has put financial risks on one single body―the central government, while guaranteeing a uniform fundraising right. A lot of scholars have suggested that the local government should be given the right to issue its own bond, on the basis of financial federalist ideas and a concern about sharing fiscal risks.
2. Theoretical basis for local government’s bondissuing activity
In the long-run, allowing local governments to issue bond will be rational decision mainly due to concerns about financial federalism and sharing fiscal risks.
Meanwhile, we should try our best to minimize negative effect of issuing local bond through relevant institutional improvements, including:
Firstly, a double supervisory mechanism featured by concurrent control of local bond issuance by both higherlevel government and people’s congress at the same level. Driven by short-term interest, the local governments will be vying with each other for bond issuing in a bid to better their “political achievement”, which may bring huge financial pressure in the long run. The ultimate decision-making right should be in the hand of the elected representative body---the people’s congress at same level.
Secondly, caution should be exercised in terms of the quality of the issuing body and specific type of the local public debt considered to be issued. Only the provincial governments and large-scale municipalities approved by the State Council have the right to issue local debt. Governments at lower level may alleviate their financial pressure by way of transferring payment in case of financial deficit because they have relatively lower credibility compared with their superior counterparts. In terms of the types of bond, in view of the Budget Law provisions and the basic tenet of the budget law, local government bond should be restricted to the issuing of construction-purpose public debt and be forbidden to issue deficit public debt.
Thirdly, special attention should be paid to the right of creditors of the public debt issued by local government. The establishment of remedial mechanisms like debt repayment fund and bond insurance will be necessary in case of debt default to repair the image of the government and maintain social stability of the local place.
3. Time is not yet mature for giving the green light to issuance of local bond in the revised Budget Law
Debt risk is a foremost concern of our top legislators in mulling over a possibility to give green light to local government bond. Foreign experiences show that the establishment of a local bond system should be accompanied by an emergency response mechanism and a government bankruptcy system. Therefore, we should consider the overall fiscal reform, the relationship between the central and the local, and the practical situation and future orientation of the country’s political reform before the introduction of local bond issuance. The key problem we should tackle in the current budget law revising efforts should be the disclosure of budgetary information to the public rather than a more controversial issue of local bond issuance.
The revised Budget Law that is expected to offer better solution to the above issues will indicate that the country’s budget law and public finance management have entered into a new phase, which will help to better regulate the exercise of government power and improve the people’s welfare.