A Study On The Scientific Degree Of Chinese Local Government Revenue Budget

A scientific local government revenue budget has an important impact on the localgovernment budget management. As to the local government who follows the ‘fiscalbalance’ principle, the accuracy and scientific nature of the revenue budget not onlymatters whether the local government could reach ‘fiscal balance’ which is the baselineof public administration, but also matters the government’s economic policy-makingdirectly, such as whether to raise or lower the tax rate or whether to increaseexpenditures for certain items. What’s more important, it matters the authority of thebudget and the ability to restrict local government’s acts. Therefore, a scientific revenuebudget is a necessary requirement for public budgets, and the premise and foundation ofa scientific government budget.A scientific government budget means that the government budget should generallyapproach the actual number. In other words, the difference between the forecast numberat the beginning of the year and the final implementation number should be small. Thescientific nature of a revenue budget, usually measured by “the deviation between thebudget and the final account”, requires the government to control the deviation within areasonable range and to minimize the deviation as small as possible. According tointernationally accepted adjustment range, an acceptable budget deviation generallyshould not exceed5%. The smaller the deviation is, the more scientific the budget is.The Budget Law of the People’s Republic of China, enacted in1995, provide a legalbasis for the scientific nature of a budget. However, according to the acting results ofthe local governments’ budgets from1994and2010, the local fiscal revenue hasincreased every year while the overall budget accuracy is low. The average deviation ofthe local governments’ budgets is high and there is a widespread phenomenon ofunderestimation. The economic cycles has a small impact on the average revenuebudget deviation. The scientific degree of local government revenue estimates differsignificantly. But the deviations of the eastern, the mid and the west regions almostchange the same way and the average deviation of the eastern region is relatively lowerthan the other two regions. The deviation of China’s local governments is mainlycaused by the deviation of the tax income forecast. The average deviation of thecorporate income tax is the largest, followed by personal income tax and sales tax.The reason for the scientific nature of China’s local governments’ revenue budget in a low level is both technical and institutional. As for technical lever, the forecast methodis too simple. And for institutional level, there are several reasons: annual budgetsystem has limitations; the total amount of the tax revenue is a planned instructionalnumber; surplus revenue has greater "discretion"; the lack of effective supervisions; thepromotion of officials is linked to the fiscal revenue under the existing system.Measures must be taken to improve local governments’ revenue budget scientificdegree, or the local government revenue budget will lose its authority, which affectlocal finance regulating the local economy greatly. Thus, the following measures areproposed: forecast the tax income based on the reality; reform the annual budget to amix of annual and long-term budget; reform the existing system which evaluateofficials’ performance by tax income; modify ‘Budget law’ and use legal means tocontrol overcharges; improve budget transparency and monitoring system.One of the innovations of this paper is to select local government revenue budget asstudy subject. Few researches study fiscal surplus and deviation between the budget andthe final account, and most of them are based on national level. Local governmentbudget is an important part of the government budget system. A scientific localgovernment revenue budget not only has an important impact on China’s budgetmanagement, but also affects local government finance regulating local economy. Soselecting local government revenue budget for the study is innovative and has a positiveinfluence on improving China’s Public Budget System. Additionally, this papercompares China and some other countries with developed budget system, such as theUnited Stated and a part of countries of the OECD. From the comparison, moreprofound reasons for why China’s local governments’ revenue budget not as scientificas some other countries are found. Some other countries have scientific and operablebudget management experience, procedures and methods. These are all of highsignificance for China’s local governments to make much more scientific revenuebudget.