5. Progress in fiscal, taxation, and related reforms

We comprehensively implemented VAT reform, eliminated instances of duplicate tax charges and optimized the taxation system. We proceeded smoothly with the reform of taxes and fees on refined oil products, clarifying what these taxes and fees are, standardized government fee collection practices, and established an effective long-term mechanism for raising highway construction funds and a new mechanism for using tax policy to guide energy consumption. We improved policies on the implementation of the Law on Corporate Income Tax. We comprehensively implemented the revised Provisional Regulations on Business Tax and the detailed rules for implementing them, and improved business tax policies. We adjusted the sales tax policy on tobacco products. We unified real estate tax regulations for domestic and overseas-funded enterprises and Chinese and foreign nationals. We improved the system of transfer payments to ethnic minority areas as well as the methods for making transfer payments to cities once dependent on now-depleted mineral resources and to major functional ecological zones. We explored ways to create a mechanism to ensure basic funding for county-level governments, and steadily carried forward the reform to place county finances directly under the management of provincial governments. We deepened the reform of the budget management system, and continued to push ahead with reforms of the systems for departmental budgeting, centralized treasury collection and payment, and government procurement. We instituted the reform of tenure in collective forests throughout the country. We helped 14 selected provincial-level administrative areas repay 49.3 billion yuan of debts incurred in providing nine-year compulsory education in rural areas. The trial of a government award and subsidy system for village-level public works projects, the launching of which will be determined by the villagers through deliberation, was expanded to 17 provincial-level administrative areas, resulting in investment exceeding 60 billion yuan and benefits for 260 million farmers.

6. Implementation of the NPC resolution on budgets

In accordance with the pertinent resolution of the Second Session of the Eleventh NPC and the guidelines of the Financial and Economic Affairs Commission of the NPC, we diligently implemented the policies on reforming taxes and fees, and strengthened the collection and management of revenue; implemented policies benefiting agriculture, rural areas, and farmers, and made good use of funds supporting them; worked hard to ensure and improve people's wellbeing; raised the performance of government investment; and pushed ahead with the reform of the public finance system. We made management of public finance more scientific and meticulous. We made substantial progress in revising the Budget Law, promulgated and implemented the Regulations on Lottery Management, and made continued progress in improving public finance legislation. We researched ways to set up a complete government budget system, further improved the system for managing the budgets of government-managed funds and the budget system for state capital operations, and started to compile budgets for social security funds on a trial basis. Budgetary spending was implemented more quickly, and implementation of the budget gradually became more balanced and efficient. We carried out a special examination of the budget for the appropriation of new assets, and intimately integrated asset management and budgetary management. The pilot program to assess the performance of budgetary spending in departments of the central government was expanded from 108 items in 74 departments in 2008 to 167 items in 94 departments last year. We created sound regulations and policies for managing fees and funds are deposited, put administrative and institutional fees collected by national and central government departments and institutions under budgetary management, and comprehensively carried out reform of non-tax revenue collection and management. We continued to improve the system of standards for employee quotas and fixed funding for basic expenditures, steadily advanced the pilot project for setting spending levels of departments on the basis of their assets, and accelerated the development of a system of standards for setting expenditure levels for programs. We reviewed programs and intensified work on creating a program database. We strengthened local public finances to guarantee the effective implementation of policies for ensuring people's wellbeing. We intensified oversight and inspection of public finance, with the focus on monitoring the use of funds and increasing oversight of the implementation of policies for boosting domestic demand and promoting economic growth. We urged local governments to accelerate the implementation of the central government investment budget, and ensured safe and efficient use of budgetary funds. We continued to informationize public finance and strengthen basic supervision of accounting and related work. We worked harder to make the administration of government finances more open, and gradually increased the timeliness and transparency of this work. We closely monitored and controlled debts owed by corporations to local financing platforms, and worked out policies and measures to effectively guard against risk from local government debts. A new stage was reached in controlling unauthorized departmental coffers.

The new achievements in budget implementation and other fiscal work in 2009 would not have been possible without the scientific decision making and firm leadership of the CPC Central Committee and the State Council; the oversight, guidance, and staunch support of the NPC and the CPPCC National Committee; and the close collaboration and hard work of all localities and departments. Nevertheless, we are keenly aware that serious problems concerning fiscal operations and management still exist. The structure of revenue growth is not sufficiently balanced, and funding for ensuring people's wellbeing needs to be increased. The system of departmental budgets needs to improve, and budgetary expenditures need to be implemented at a more balanced pace. Local government debts are mounting and financial risks cannot be overlooked. The transfer payment system is not yet sufficiently standardized; fiscal systems at and below the provincial level need to further improve, and township- and county-level governments in some areas are experiencing financial difficulties. Fiscal management remains fairly weak and there is an urgent need for the performance of government funds to improve. We will pay close attention to these problems and continue to adopt measures to solve them.

II. Draft Central and Local Budgets for 2010

This is a crucial year for continuing to deal with the global financial crisis, maintaining steady and rapid economic development, and accelerating the transformation of the pattern of economic development. It is also an important year for achieving all the targets of the Eleventh Five-Year Plan and laying a solid foundation for development on the basis of the Twelfth Five-Year Plan.

1. The current financial situation in China

On the whole, public finance in 2010 faces a more favorable environment than last year, but the situation remains complex. Regarding revenue, improvements in the macroeconomic situation and the performance of enterprises, and an increase in prices will help increase revenue. Nevertheless, the implementation of the policy of structural tax reductions, last year's increases in export tax rebate rates for some products, and other factors will affect this increase. It will be difficult for imports and exports to return to their pre-crisis levels anytime soon, and import and export tax revenue will not increase significantly. Some industries' and enterprises' profits will be low, making increases in corporate income tax revenue unlikely. In addition, last year's special measures to increase revenue will affect revenue increases this year. Regarding expenditures, huge sums of money will be needed to support ongoing projects. Further increases in financial support will be required to raise the incomes of low-income groups; improve key links in economic and social development, such as agriculture, rural areas, farmers, education, science and technology, social security, employment, medical and health care, low-income housing, and energy conservation and emissions reductions; and develop ethnic minority areas and border areas. In these areas, the base figure for expenditures is large and there is little leeway. In addition, major increases in investment are needed to support post-Wenchuan earthquake recovery and reconstruction, launch a pilot program for a new old-age insurance system for rural residents, and proceed with the reform of the pharmaceutical and healthcare systems and other reforms. This year will therefore be a very difficult year for public finance.

Faced with this situation, we must, on the one hand, take note of all favorable conditions and positive factors and fortify our confidence, and on the other hand, take into full consideration the difficulties and challenges we will face and avoid blind optimism. We need to raise our awareness of potential dangers and risks, be thoroughly prepared to respond to risks and challenges, and firmly maintain the initiative in our work.