State Council aims to address obscurity, irrationality and irregularity in central-local fiscal expenditure and power distribution in its newly released ‘Guiding opinions’. Current problems around distribution of fiscal responsibilities are legacies of the 1994 tax assignment reform when tax revenue was centralised, but expenditure responsibilities remained with localities. Without specific guidelines, the division of spending responsibility is left to the discretion of each level of government, but vague definitions allowed responsibilities to be pushed to lower levels without corresponding changes in tax revenue.

State Council’s new policy aims to

  • recentralise responsibilities to central government
  • clarify where local governments hold fiscal responsibility, including urban maintenance and construction, water supply and community services
  • reduce and regulate central-local shared expenditures to clarify responsibilities
  • speed up reform on taxation power and expenditure responsibilities for sub-provincial level governments