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AN INTRODUCTION TO THE DEPARTMENT BUDGET

MANAGEMENT REFORM OF CENTRAL GOVERNMENT

Guifeng LIN Deputy Director-General, Department of Bu

dget, Ministry of Finance, PRCApril 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 departmentBudgetdepartmentBudget

General BudgetGeneral Budget Fund BudgetFund Budget

Revenue BudgetRevenue BudgetExpenditure BudgetExpenditure Budget Expenditure BudgetExpenditure BudgetRevenue Budget Revenue Budget

Chart 1 －1

Budget

appropriation B

udget appropriation

Revenue off budget

Revenue off budget

Other R

evenueO

ther Revenue

Basic E

xpenditureB

asic Expenditure

Project E

xpenditureP

roject Expenditure

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2.2 Main contents of reform1 、 Reform ： one 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 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 Expenditure Budget

Administration quotaAdministration quotaStaff quotaStaff quota

Basic quotaBasic quota

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Basic Budget

Expenses on social security Expenses on social security

pensionpension

Base payBase pay

Allowances and bonusAllowances and bonus

StipendStipend

Fee for serviceFee for service

Lodging subsidy Lodging subsidy

Base PayBase Pay

AllowancesAllowances

BonusBonus

Expenses on social securityExpenses on social security

Termination payTermination pay

Retirement Pension Retirement Pension

Severance pay Severance pay

Other expensesOther expenses

subsidysubsidy

Other staff expenseOther staff expense

StipendStipend

Fee for serviceFee for service

Lodging subsidiesLodging subsidies

Staff Q

uota

Staff Q

uota

Exp

end

iture item

s of bu

dget

classificationE

xpen

ditu

re items of b

ud

get classification

Other staff allowancesOther staff allowances

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Basic BudgetExpenses on administration

and printingExpenses on administration

and printingAdministrationAdministration

PrintingPrinting

Water and electricityWater and electricity

trainingtraining

hosthost

Expenses on conferenceExpenses on conference

Ad

min

istration Q

uota

Ad

min

istration Q

uota

Exp

end

iture item

s of bu

dget classification

Exp

end

iture item

s of bu

dget classification

Water and electricityWater and electricity

Special equipmentSpecial equipment

VehiclesVehicles

Special materialsSpecial materials

Office equipmentOffice equipment

BooksBooks

Expenses on conferenceExpenses on conference

LaborLabor

Employment subsidyEmployment subsidy

Other public expensesOther public expenses

Other ExpendituresOther Expenditures

Purchase of special material

Purchase of special material

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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 Budget

Public Administration

Public AdministrationInfrastructureInfrastructure

ProjectProject

OtherOther

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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.

Project Budget

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2.2 Main contents of the reform3 、 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

MOFPeople’s Congress

Report Collect & Adjust

Examine

Allocation

Report Collect & Adjust

Allocation

Collect & Report

Examin

e

approve authorize

authorize

Report1

Authorize1

Report2

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 mech

anism 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 supe

rvision

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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 People’s 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!