1. 1 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

2. 2 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

3. 3 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

4. 4 II. Main Content of Department Budget Reform  2.1 Concepts and framework 2.1  2.2 Contents of reform

5. 5  2.1Concepts and framework 2.1 Department budget consists of budget planning, reporting,auditing and collecting of central department in accordance with budgeting regulations

6. 6  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

7. 7  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

8. 8 Framework departmentBudget General Budget Fund Budget Revenue Budget Expenditure Budget Revenue Budget Chart 1 － 1 Budget appropriation Revenue off budget Other Revenue Basic Expenditure Project Expenditure

9. 9  2.2 Main contents of reform 1 、 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.

10. 10  2.2 Contents of reform 2 、 Divided the expenditure budget into basic expenditure and project expenditure.

11. 11  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 quota Staff quota Basic quota

12. 12 Basic Budget Expenses on social security pension Base pay Allowances and bonus Stipend Fee for service Lodging subsidy Base Pay Allowances Bonus Expenses on social security Termination pay Retirement Pension Severance pay Other expenses subsidy Other staff expense Stipend Fee for service Lodging subsidies Staff Quota Expenditure items of budget classification Other staff allowances

13. 13 Basic Budget Expenses on administration and printing Expenses on administration and printing Administration Printing Water and electricity training host Expenses on conference Administration Quota Expenditure items of budget classification Water and electricity Special equipment Vehicles Special materials Office equipment Books Expenses on conference Labor Employment subsidy Other public expenses Other Expenditures Purchase of special material

14. 14  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 Infrastructure Project Other

15. 15  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

16. 16  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.

17. 17  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.

18. 18 Flow Chart Grass-roots Unit DepartmentMOF People’s Congress Report Collect & Adjust Examine Allocation Report Collect & Adjust Allocation Collect & Report Examine approve authorize Report1 Autho rize1 Report 2 Authori ze2

19. 19  2.2 Main contents of the reform 5 、 Promoted the transition of performance from “allocation oriented” to “management oriented”

20. 20 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

21. 21  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.

22. 22  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.

23. 23 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.

24. 24  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.

25. 25  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.

26. 26 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

27. 27  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

28. 28  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

29. 29  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.

30. 30  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.

31. 31  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

32. 32  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.

33. 33 Thank you very much!