AN INTRODUCTION TO THE DEPARTMENT BUDGET MANAGEMENT REFORM OF CENTRAL GOVERNMENT

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AN INTRODUCTION TO THE DEPARTMENT BUDGET
MANAGEMENT REFORM OF CENTRAL GOVERNMENT

• Guifeng LIN
• Deputy Director-General, Department of Budget,
  Ministry of Finance, PRC
• April 27th,2005

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CONTENTS

• I. Background to Department Budget Reform
• II. Main Content of Department Budget Reform
• III. Achievements of Department Budget Reform
• IV. Considerations on Department Budget Reform
  in the future

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I. Background to Department Budget Reform

• since 1979 The adjustment of public finance
  functions that aims to establish Chinese public
  finance framework in accordance with market
  economy
• 1994 built the taxation division system while
  public finance expenditure with low efficiency
• National Audit Office and Standing Committee of
  National People Congress suggested improving
  central budget report and department budget in
  1999
• Reform of central department budget since FY2000

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II. Main Content of Department Budget Reform

• 2.1 Concepts and framework
• 2.2 Contents of reform

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• 2.1Concepts and framework
• Department budget consists of budget
  planning, reporting ,auditing and collecting of
  central department in accordance with budgeting
  regulations

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• 2.1Concepts and framework
• Content including all revenues and expenditures
  in each department
• Type according to different functions and
  objectives
• Process collecting all separate budget

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• 2.1Concepts and framework
• Accuracy broken into separate unit and project
• Validity budgeting under the authority of
  Ministry of Finance in accordance with laws and
  regulations

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Framework
departmentBudget
General Budget
Fund Budget
Revenue Budget
Expenditure Budget
Expenditure Budget
Revenue Budget
Budget appropriation
Other Revenue
Project Expenditure
Basic Expenditure
Revenue off budget
Chart 1-1
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• 2.2 Main contents of reform
• 1?Reformone budget for one department
• department budget comprises all the
  revenues and expenditures in one department
  according to unified regulations with the same
  format. Achieved initial objectives for concise
  and complete budget for every department.

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• 2.2 Contents of reform
• 2?Divided the expenditure budget into basic
  expenditure and project expenditure.

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Basic Expenditure Budget

• Basic Budget is a branch of department
  expenditure budget. It includes basic annual
  expenditures to facilitate daily operation in
  public institution including expenditures on
  staff and administration commodities.

Basic quota
Administration quota
Staff quota
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Basic Budget
Expenditure items of budget classification
Base Pay
Base pay
Staff Quota
Allowances
Allowances and bonus
Bonus
Expenses on social security
Expenses on social security
Termination pay
pension
Retirement Pension
Severance pay
Stipend
Stipend
Fee for service
Fee for service
Lodging subsidies
Lodging subsidy
subsidy
Other expenses
Other staff expense
Other staff allowances
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Basic Budget
Expenditure items of budget classification
Administration Quota
Administration
Expenses on administration and printing
Printing
Water and electricity
Water and electricity
Expenses on conference
Expenses on conference
Special materials
Office equipment
Purchase of special material
Special equipment
Vehicles
Books
training
host
Other Expenditures
Labor
Employment subsidy
Other public expenses
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Project Budget

• Project budget is an annual expenditure beyond
  basic budget. It realizes the objective of
  administrative management and public affairs.
• Based on database management, project budget
  prioritizes the tasks of central government
  according to expenditure plan in public
  administration in order to establish the
  mechanism of rolling management .

Project
Public Administration
Infrastructure
Other
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Project Budget

• We regularly manage project database according
  to unification, classification and
  prioritization.
• Unification refers to design, plan and make
  declaration documents with one principle.
• Classification refers to manage database under
  respective authority.
• Prioritization refers to manage database
  according to the degree of urgency.
• Rolling management refers to transfer the
  continued project from budget this year to next
  year.

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• 2.2 Main contents of the reform
• 3?Promoted the reform of revenue and expenditure
  with comprehensive orientation.
• Unified the budget management mode and
  canceled those outdated transition policies.
  Department budget must include all the other
  revenues besides government revenue. All charges
  in public administration should be transmitted to
  Treasury or special account.

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• 2.2 Main contents of the reform
• 4?Standardized budget procedure between the
  Ministry of Finance and central department. The
  overall budget procedure includes four phases as
  follows.

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Flow Chart

Grass-roots Unit
Department
MOF
Peoples Congress
Report
Collect Adjust
Report1
Examine
Allocation
Allocation
Authorize1
Report
Collect Report
Collect Adjust
Report2
Examine
approve
authorize
authorize
Authorize2
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• 2.2 Main contents of the reform
• 5?Promoted the transition of performance from
  allocation oriented to management oriented

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III? Results of departmentBudget Reform

• 3.1 Established primary budget allocation
  mechanism in accordance with macroeconomic
  policies and departmentfunctions.
• 3.2 Strengthened budget constrain, implementation
  and validity.
• 3.3 Changed the time and modes of budget then
  increased accuracy on budget.
• 3.4 Confirmed the subject of budget
• 3.5 Increased transparency and intensified
  supervision

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• 3.1 Established primary budget allocation
  mechanism in accordance with macroeconomic
  policies and departmental functions.
• Ministry of Finance collect unit budget and
  report according to policies in macro economy
  and programs in social development. All
  departments should systematically allocate the
  budget in accordance with budget structure and
  plan. First, key projects Second special
  projects Third, other projects.

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• 3.2 Strengthened budget constrain, implementation
  and validity.
• Divided all expenditures into basic
  expenditures and project expenditures. Implement
  standardized budget management. Reduced backup
  budget and time lag in implementation and
  increase the ratio of allocated budget.

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3.3 Changed the time and modes of budget then
increased accuracy on budget. Budget time is
extended from 3 months in 1999 to 7 months in
2004. Central budget is collected from basic
units and all expenditure items are related with
the relevant units.
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• 3.4 Conformed the subject of budget
• Basic units should make budget by themselves
  under the basic expenditure guide line proposed
  by MOF. It is practical and self controlled.

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• 3.5 Increased transparency and intensified
  supervision
• Department budget proposal to NPC increased
  from 26 in 2001 to 34 in 2004. Budgets to NPC is
  specified and some important expenditure planning
  including education, science technology and
  social security are also proposed to NPC.

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IV. Further Reform of department Budget in the
future

• 4.1 To promote the reform of basic budget and the
  quota management system
• 4.2 To improve project budget modes to fulfill
  rolling management gradually
• 4.3 To raise the public finance efficiency by
  regular examination of performance
• 4.4 To promote the reform of separation between
  off budget revenues and expenditures to carry out
  comprehensive budget
• 4.5 To standardize budget management procedure
  to strengthen budget constrain and budget
  supervision

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• 4.1 To promote the reform of basic budget and the
  quota management system
• Intensify data collection and verification
• Combine assets quota and allocation quota

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• 4.2 To improve project budget modes to fulfill
  rolling management gradually
• To introduce new regulations and quantitative
  methods
• To improve management of project database
• To adjust project expenditure according to
  medium-and-long-term plan and establish the
  mechanism of rolling management

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• 4.3 To raise the public finance efficiency by
  regular examination of performance
• To introduce the concept of performance into
  budget management according to the reform of
  public finance. Establish the examination of
  performance to improve the efficiency of fiscal
  management.

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• 4.4 To promote the reform of separation between
  off budget revenues and expenditures to carry out
  comprehensive budget
• To improve the off budget management
• To promote the reform of separation between off
  budget revenues and expenditures and include all
  off budget funds in accordance with budget plan.

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• 4.5 To standardize budget management procedure
  to strengthen budget constrain and budget
  supervision
• Standardized budget procedure as follows
• To standardize the mechanism of internal and
  external budget management
• To standardize the reports and examination system
  of the State Council , auditing departments and
  fiscal department
• To standardize the mechanism of authorization and
  supervision of the Peoples Congress and the
  State Council

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• 4.5 To standardize budget management procedure
  to strengthen budget constrain and budget
  supervision
• Establish the mechanism of standardized budget
  procedure
• To standardize budget procedure includes budget
  plan, budget implementation and adjustment and
  budget approval. They constitute a overall system
  of budget management.

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Thank you very much!