The fiscal family: adviser says China’s tax flows should resemble parental ties | South China Morning Post

The full implementation of taxation reforms pledged in China’s new five-year plan would substantially ease the fiscal strains on local governments, a leading tax policy expert said, while adding that it would not alter the central government’s dominant role in the country’s fiscal landscape.

As a unitary state, China’s systematic advantage lay in strong central government finance that could coordinate fiscal resources in a unified manner and redistribute them through transfer payments, in contrast to a fiscally federalist system like that of the United States, said Zhang Lianqi, president of the Enterprise Financial Management Association of China and vice-president of the Chinese Tax Institute.

“Central finance is like a father – the parent must have money – while local governments are like children, who should also have some money but cannot hold the larger share,” said Zhang, who is also a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body.

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“It is logical for the father to transfer payments to the children. But if the father constantly has to borrow from the children to balance public finances, then that becomes a big problem.”

In recent years, local governments in China have been struggling to replenish their coffers amid slowing economic growth and a prolonged property crisis, impeding their ability to meet growing public service obligations.

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In the annual government work report and the draft for China’s 15th five-year plan, both released last week, Beijing pledged to “improve the local tax system” and “increase local autonomous fiscal resources”.