Following is the full text of report on the implementation of central and local budgets for 2014 and on draft central and local budgets for 2015, which was submitted for review on March 5, 2015 at the Third Session of the 12th National People's Congress and was adopted on March 15:

REPORT ON THE IMPLEMENTATION OF THE CENTRAL AND LOCAL BUDGETS FOR 2014 AND ON THE CENTRAL AND LOCAL DRAFT BUDGETS FOR 2015

Third Session of the Twelfth National People's Congress

March 5, 2015

Ministry of Finance

Fellow Deputies,

The Ministry of Finance has been entrusted by the State Council to submit this report on the implementation of the central and local budgets for 2014 and on the drafts of the central and local budgets for 2015 to the Third Session of the Twelfth National People's Congress (NPC) for your deliberation and for comments from the members of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

I. Implementation of the Central and Local Budgets for 2014

Faced with a complex and changing international environment and formidable tasks of domestic reform, development, and stability in 2014, the Central Committee of the Communist Party of China (CPC) and the State Council have grasped the overarching trend of development, adhered to the general principle of seeking progress while keeping performance stable, deepened reform in all respects, continued to develop new ideas and methods for exercising regulation at the macro level, and effectively implemented proactive fiscal policy and prudent monetary policy. As a result, the economy has performed within an appropriate range, and development has become more balanced and sustainable. Both the central and local government budgets were well implemented.

1. Implementation of the NPC's budget resolution

In accordance with the resolution of the Second Session of the Twelfth NPC on the report on both the implementation of the central and local budgets for 2013 and the central and local draft budgets for 2014 and the review of that report by the NPC's Financial and Economic Affairs Commission, we have deepened reform of the fiscal and tax systems, strengthened budgetary management, and made full use of the role of public finance.

Major progress has been made in reforming the fiscal and tax systems.

The overall plan for deepening reform of the fiscal and tax systems was deliberated over and passed at a meeting of the Political Bureau of the CPC Central Committee.

First, substantive progress has been made in reforming the budget management system. We cooperated with the NPC on revising the Budget Law and saw the completion of its revision, and moved faster to revise the regulations on its enforcement. We issued the decision on deepening reform of the budget management system. We formulated the guidelines on carrying out medium-term fiscal planning, and began work on developing a national fiscal plan on a rolling three-year basis. We drew up the proposal on reforming and improving the system of transfer payments from the central to local governments and optimized the structure of payments, cutting the number of items receiving special transfer payments by over one third compared with the previous year and increasing transfer payments to old revolutionary base areas, areas with concentrations of ethnic minorities, and border areas by 12.1%.

Second, systematic steps have been taken to reform the tax system. We further extended the trials to replace business tax with value added tax (VAT) to include, on a national scale, the railway transport, postal, and telecommunications industries. We drew up a plan for the reform of consumption tax and improved related policies. We implemented nationwide reform to levy a price-based resource tax on coal, adjusted the rates of resource tax on crude oil and natural gas, and cleared up and standardized administrative charges and government funds related to coal, crude oil, and natural gas. We cooperated with the work of the NPC on tax-related legislation, including preparatory work on legislation on environmental protection tax, and submitted to the NPC a suggested timetable for work on the implementation of the law-based taxation principle.

Third, with a view to creating a better fit between government powers and spending responsibilities, we made a systematic review of how powers and expenditure responsibilities are allocated in mature market economies, researched into the current allocation of powers and spending responsibilities in sectors including national defense, public security, and food and drug regulation, and achieved initial results in our research on fiscal structural reform.

In addition, we published the guidelines on improving and strengthening management of central government-funded research programs and their funding. We formulated a plan for deepening reform of the management of science and technology initiatives (projects and funds) financed by the central government, restructuring the system of management for such initiatives (projects and funds), dividing them into five categories, and gave impetus to the transformation of the government's functions of managing science and technology and the ways it exercises management. We carried out pilot reforms on management of the use and commoditization of and the distribution of profit from scientific and technological advances. We finished formulating the Regulations on the Enforcement of the Government Procurement Law. We drew up regulations for managing the government procurement of services and organized the launching of trials for governments to procure services. We also gave our support to reforms in state-owned enterprises (SOEs) and in the judicial, state capital, financial, and other important sectors.

Constraints on budgets were tightened.

We worked diligently to implement NPC-approved budgets and maintain their authority. Despite a slowdown in the growth of government revenue and mounting pressure on expenditure, the deficit was kept at the same level as the figure budgeted in early 2014. We examined and approved the budgets of central government departments within the stipulated time frame, kept under strict control additional items in their budgets for which funds may be appropriated and the time frames within which such appropriations may be made, and reduced adjustments to departmental budgets. We sped up the process of making central government transfer payments available to local governments, shortening the time needed for general transfer payments from within 90 days to within 30 days of the approval of a budget. We improved the methods for evaluating the progress of implementation of budgetary expenditures by local governments, and promptly urged localities where spending had fallen behind schedule to speed up their implementation. We intensified efforts to develop an accurate picture of carryover and surplus funds, and launched ten specific policies and measures to make better use of available government funds. We thoroughly reviewed and standardized local governments' special accounts and closed approximately 12,000 accounts that ran counter to relevant regulations.