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.
“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.”
