Marxism Research Network
Unofficial English Translation

Ma Jun: Deepening the Reform of the Fiscal and Taxation Systems to Lay a Solid Foundation for Advancing Chinese Modernization

Xi Jinping Thought (New Era)

The Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Advancing Chinese-path Modernization (hereinafter referred to as the Decision), adopted at the Third Plenary Session of the 20th CPC Central Committee, proposes important measures such as improving the budgetary system, improving the tax system and optimizing the tax structure, and establishing a central-local fiscal relationship characterized by clear responsibilities, coordinated financial resources, and regional balance. These provide the fundamental compliance for deepening the reform of the fiscal and tax systems.

Deepening Reform of the Fiscal and Tax Systems is of Great Significance for Advancing Chinese-path Modernization

To profoundly understand the significance of deepening fiscal and tax reform, one must look beyond specific measures regarding the budgetary system, tax system, and intergovernmental fiscal relations. These specific reforms must be grasped comprehensively within the strategic context of advancing Chinese-path Modernization, alongside reforms in other sectors. Based on the importance of fiscal and tax reform to this modernization, the Decision adheres to systems thinking [1] to make a series of reform deployments. Not only is fiscal and tax reform deployed as a vital component of "improving the macroeconomic governance system," but arrangements are also integrated into various other key reform areas. This fully reflects the strategic status of finance as the foundation and an important pillar of national governance, demonstrating that fiscal and tax reform is a global and comprehensive undertaking vital to the advancement of Chinese-path Modernization.

First, it is a necessity for further exerting the role of finance as the foundation and important pillar of national governance. The Decision proposes that further comprehensively deepening reform must "take the reform of the economic system as the lead." That is to say, by successfully grasping economic system reform, one grasps the "ox's nose" [2] of further comprehensively deepening reform. As a vital component of the macroeconomic governance system, fiscal and tax reform is the highest priority within economic reform. By continuing to deepen these reforms and effectively establishing a modern fiscal system that meets the requirements for modernizing the national governance system and capacity, we can consolidate the foundation of national governance—an achievement crucial to realizing the general goal of further comprehensively deepening reform.

Second, it is a necessity for further constructing a high-level socialist market economy system. Adhering to the direction of socialist market economy reform is the successful experience behind our past economic achievements, and a high-level socialist market economy is an important guarantee for Chinese-path Modernization. The core issue of the socialist market economy system is the proper handling of the relationship between the government and the market. A high-level system requires a better integration of a promising government and an effective market. Only by continuing to advance fiscal and tax reform can we continuously form scientific macroeconomic regulation and effective government governance. This is an intrinsic requirement for leveraging the advantages of the socialist market economy and constructing a high-level socialist market economy system.

Third, it is a necessity for further improving the systems and mechanisms that promote high-quality development. Achieving high-quality development is one of the essential requirements of Chinese-path Modernization; without it, there can be no talk of socialist modernization. China’s economy has transitioned from a stage of rapid growth to a stage of high-quality development. Compared to traditional factor-driven growth, high-quality development pays more attention to innovation-driven growth, common prosperity for all people, well-rounded human development, and harmony between humanity and nature. All of these place new and higher demands on fiscal and tax institutional arrangements.

Fiscal and Tax Reform has Achieved Significant Successes in the Process of Advancing Chinese-path Modernization

The fiscal and tax system is a vital component of the economic system. The type of modernization development strategy in place dictates the economic system, which in turn requires a corresponding fiscal and tax system. Reviewing the history since the founding of the People's Republic of China, finance has always played a crucial role in advancing Chinese-path Modernization, and fiscal and tax reforms have propelled major progress in the process of national modernization.

In the early days of the New China, to adapt to the reality of extreme resource scarcity, the state established a planned economy system to coordinate social resources and establish the foundations of national industrialization as quickly as possible. Serving the national development strategy of that period, China formed a planned fiscal system of "unified revenue and unified expenditure" [3]. The state raised fiscal revenue primarily by collecting the profits of state-owned enterprises, and fiscal expenditures were mainly used for urban economic construction. Relying on this system, the Party led the people to concentrate resources to accomplish large undertakings [4], and an independent industrial system was initially established.

After the start of Reform and Opening-up, the 14th National Congress of the CPC explicitly proposed the establishment of a socialist market economy system. Along with the transformation of the national development strategy and the economic system, the primary tasks of fiscal reform in this period were to promote the "publicization" of finance and construct a framework for a public finance system. Among these, the 1994 tax-sharing reform [5] made major contributions: first, it established and continuously improved a government revenue system primarily based on standardized taxation; second, fiscal expenditure shifted from being used primarily for economic construction to giving equal weight to both economic construction and the provision of public services; third, it divided tax categories based on the division of central and local administrative powers, introduced a fiscal transfer payment system, and standardized the fiscal distribution relationship between the central and local governments; fourth, government public services began to cover residents of different household registrations and operators of different ownership types, truly realizing the transition to a public finance system. The establishment of the public finance system played an important foundational and supporting role in establishing the basic framework of the socialist market economy and promoting rapid economic growth. The steady growth of national fiscal revenue enhanced the supply level and capacity of public goods and services, creating better conditions for the development of the socialist market economy and the improvement of people's living standards.

The Decision of the Central Committee of the Communist Party of China on Several Major Issues Concerning Comprehensively Deepening Reform, adopted at the Third Plenary Session of the 18th CPC Central Committee, made specific deployments for deepening fiscal and tax reform in the New Era. It emphasized that we "must improve legislation, clarify administrative powers, reform the tax system, stabilize the tax burden, ensure transparent budgets, and increase efficiency to establish a modern fiscal system and mobilize the initiatives of both the central and local governments." For over a decade, various reform tasks have achieved significant results, and the framework for a modern fiscal system has been basically established. The tax system has become more scientific, and continuous tax and fee reductions have provided strong support for economic and social development. The structure of fiscal expenditure has become more rational. With fiscal support, China has historically eliminated absolute poverty.

Key Areas to be Grasped in Deepening Fiscal and Tax Reform

On the new journey in the New Era, if finance is to further exert its role as the foundation and important pillar of national governance and lay a solid foundation for advancing Chinese-path Modernization, we must deepen fiscal and tax reform and continuously improve the modern fiscal system.

First, establish and improve a modern fiscal system compatible with Chinese-path Modernization. Only with a law-based, powerful, and secure modern fiscal system can we fully leverage the role of finance in modernizing the national governance system and capacity and accelerate the progress of Chinese-path Modernization. To this end, the Decision makes further deployments in three aspects:

  1. Improving the budgetary system. We must strengthen the coordination of fiscal resources and budgeting, incorporating all revenues derived from administrative power, government credit, and state-owned resources and assets into government budget management. We will improve the state-owned capital operations budget and performance evaluation system, and strengthen financial guarantees for major national strategic tasks and basic people's livelihoods. We will strengthen macroeconomic guidance over budget preparation and fiscal policy, improve performance management for public services, and enhance pre-operational functional evaluations. We will deepen the reform of zero-based budgeting, unify budget allocation powers, and improve the consistency and standardization of budget management while refining budget disclosure and supervision systems. We will also improve the accrual-based comprehensive government financial reporting system.
  2. Improving the government revenue system with standardized taxation as the mainstay. We must "improve a tax system conducive to high-quality development, social equity, and market unity, and optimize the tax structure." We should fully leverage the role of the tax system in optimizing resource allocation, overcoming market fragmentation, encouraging innovation and green development, and promoting social equity.
  3. Further smoothing central-local fiscal relations. We must effectively alleviate local fiscal pressure and actively prevent fiscal risks. We will increase the autonomous financial resources of local governments, expand local tax sources, and appropriately expand local authority over tax management. We will improve the fiscal transfer payment system, clean up and standardize special-purpose transfer payments, increase general transfer payments, and enhance the degree to which the financial resources of cities and counties match their administrative powers. We will establish incentive and constraint mechanisms for transfer payments that promote high-quality development. We will promote the shift of consumption tax collection to later stages in the production-consumption chain and steadily delegate it to local governments. We will improve policies for value-added tax (VAT) credit refunds and the deduction chain, and optimize the sharing ratios of shared taxes. We will research the consolidation of the urban maintenance and construction tax, the education surcharge, and the local education surcharge into a "local surtax," authorizing local governments to determine specific applicable tax rates within a certain range. We will reasonably expand the scope of support for local government special-purpose bonds and appropriately expand the fields, scale, and proportions used as project capital. We will improve the government debt management system, establish a full-coverage monitoring and regulatory system for local debt, and create long-term mechanisms to prevent and resolve hidden debt risks, while accelerating the reform and transformation of local government financing platforms. We will standardize the management of non-tax revenue and appropriately delegate some management authority over non-tax revenue to local governments for differentiated management based on actual conditions.

Second, focus on constructing a high-level socialist market economy system to deepen fiscal and tax reform. The core of the reform is handling the relationship between the government and the market. Fiscal and tax reform should serve the construction of a unified, open, competitive, and orderly market system, allowing the market to play a decisive role in resource allocation and creating a fairer and more dynamic market environment. We must better leverage the role of the government to promote the construction of a national unified large market, cleaning up and abolishing various regulations and practices that hinder a unified market and fair competition. We will establish and improve a unified, standardized, and information-sharing system for public resource trading platforms—covering bidding, tendering, and procurement by governments, public institutions, and state-owned enterprises—to achieve full-process public management of projects. We will improve basic market economy systems, break down barriers to the flow of factors in public service provision, and improve mechanisms where all types of production factors flow freely, are evaluated by the market, and are rewarded according to their contribution.

Third, deepen fiscal system reform around the promotion of high-quality development. The institutional arrangements should fully reflect the New Development Philosophy of innovation, coordination, green development, openness, and sharing.

  1. Provide fiscal guarantees for constructing systems and mechanisms that support comprehensive innovation, deepening fiscal support for technological innovation and various high-level talents. We must improve the fiscal and tax systems conducive to developing new quality productive forces and promoting the innovative development of the platform and digital economies.
  2. Strengthen the role of finance in supporting the systems and mechanisms for integrated urban-rural development. We will implement a system where basic public services are provided based on place of residence rather than place of household registration (hukou). We will ensure that eligible members of the population moving from agriculture to cities enjoy the same rights as local registered residents regarding social insurance, housing security, and compulsory education for their children, thereby accelerating the urbanization of the agricultural transfer population.
  3. Strengthen fiscal support for perfecting mechanisms for green and ecological development. We will implement a fiscal and tax policy and standards system that supports green and low-carbon development, improve the green tax system, and refine horizontal ecological protection compensation mechanisms.
  4. Strengthen fiscal support for promoting high-level opening-up. We will optimize the business environment and enhance the attractiveness for multinational investment by deepening the reform of tax collection and administration, promoting trade liberalization and facilitation.
  5. Leverage the active role of finance in ensuring that the fruits of reform are shared by the people. Fiscal expenditure should reinforce guarantees for basic people's livelihoods, strengthen the construction of inclusive, basic, and "safety-net" livelihoods, solve the most immediate and realistic problems that concern the people most, and continuously meet the people's aspirations for a better life.