National Economics University School of Banking and Finance PRESENTATION Subject PUBLIC FINANCE Topic REVENUE AND SPENDING OF VIETNAM’S GOVERNMENT Group 5 1 Le Thi Kim Tuyen 2 Nguyen Vu Ha Phuong 3 Vu[.]
National Economics University School of Banking and Finance PRESENTATION Subject: PUBLIC FINANCE Topic: REVENUE AND SPENDING OF VIETNAM’S GOVERNMENT Group 5: Le Thi Kim Tuyen Nguyen Vu Ha Phuong Vu Thi Huyen Trang Tran Thi Nhan Pham Van Khoa Nguyen Linh Trang Pham Thi Diem Ha Vu Thu Trang CONTENT I Pag e OVERVIEW OF GOVERNMENT BUGEDTING: Characteristics of the state budget: 2 The role of the state budget: II REVENUE How to raise the government budget: Analysis Vietnam government revenue: Solutions to raise State budget revenues: III SPENDING 10 Definition of government spending: 10 Plan of central budget expenditures over the years: A series of solutions to reduce overspending, to restructure public debt: 13 IV CONCLUSION 16 19 I/ OVERVIEW OF GOVERNMENT BUGEDTING: Characteristics of the state budget: - State budget revenues and expenditures are closely tied to state economic and political power, and the performance of state functions is carried out by the State on the basis of certain laws; - State budget activity is the activity of redistributing financial resources, which is reflected in the two areas of revenue and expenditure of the state The state budget is always tied to state ownership, which always contains common interests and public interests - The state budget also has features like other monetary funds The difference of the state budget as a centralized monetary fund of the state is that it is divided into a number of small-scale funds of their own, which can then be used for specified purposes; - The state budget revenue and expenditure activities shall be implemented on the principle of non-refund of principal amounts directly The role of the state budget: State budget plays a very important role in the entire economy, society, security, defense and foreign affairs of the country It should be understood that the role of the state budget is always attached to the role of the state in certain stages For a market economy, the state budget assumes a macro management role for the whole economy and society The state budget is a tool for macro-economic adjustment, production development orientation, market regulation, price stabilization and social adjustment - Mobilizing state budget funds to meet the state's spending needs : The level of mobilization of financial resources from economic operators requires reasonable incentives if the level of incentives is too high or too low to affect the development of the economy This is in line with the ability of the actors to contribute financially to the economy - Macro regulation of economy : The state budget is a tool to shape the new economic structure, stimulate the development of production and business and antimonopoly First of all, the Government will direct the activities of entities in the economy into the orbit that the government has planned to form the optimal economic structure, create conditions for the economy to develop stable and durable steady Through state budget spending, the state will provide funding for infrastructure investments, forming enterprises of key sectors on the basis of which create favorable conditions and conditions for the outflow life and development of enterprises of all economic sectors (the importance of electricity, telecommunications and aviation to business activities of enterprises) In addition, funding for the formation of state-owned enterprises is one of the basic measures to combat the monopoly and keep the market from falling into incomplete competition Under specific conditions, budgetary resources can also be used to support the development of enterprises, to ensure structural stability or to prepare for the transition to a new structure more rational Through revenue collection, by mobilizing financial resources through taxes, the state budget ensures the role of investment orientation, stimulation or limitation of production and business - Economically : Stimulating economic growth under the direction of socioeconomic development through taxation tools and tax rates of the state will contribute to stimulate production development attracting investment of enterprises In addition The state also uses the state budget to invest in infrastructure to create favorable conditions and environment for enterprises to operate - Socially : The role of regulating income among the population in the society Direct help for people with low income or special circumstances such as payment for social assistance, indirect subsidy in the form of support prices for essential goods, expenses for implementation of population policies, employment policies, anti-illiteracy, support for flood victims - Market : The state will use the state budget as a tool to contribute to stabilizing prices and curbing inflation The state only regulates important commodities that are strategic The mechanism of regulation through subsidies, adjustment of import tax rates, national reserves Labor capital market: through the issuance of bonds and government spending Curbing inflation: Together with the central bank with appropriate monetary policy, the state budget contributes to tax policy and government spending II/ REVENUE: 1/ How to raise the government budget: Government Revenues refer to all receipts the government gets, including taxes, custom duties, revenue from state-owned enterprises, capital revenues and foreign aid Government Revenues are part of government budget balance calculation. So in this section, we will find out the meanings of all these elements and which elements can help to raise the government revenues + Taxes: Tax revenue isthe income that is gained by governments through taxation Taxation is the primary source of income for a state In Vietnam, taxation actually has become the primary source of the govenrment revenue since 1990 An inefficient collection of taxes is greater in countries characterized by poverty, a large agricultural sector and large amounts of foreign aid Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be a third party licensed to collect tax which they themselves will use. For example, in Vietnam the agency has the power and right to collect tax is General Department of Taxation which is under Ministry of Finance + Custom duties: Customs Duty is a tariff or tax imposed on goods when transported across international borders The purpose of Customs Duty is to protect each country's economy, residents, jobs, environment, etc., by controlling the flow of goods, especially restrictive and prohibited goods, into and out of the country Dutiable refers to articles on which Customs Duty may have to be paid Each article has a specific duty rate, which is determined by a number of factors, including where you acquired the article, where it was made, and what it is made of Also, anything you bring back that you did not have when you left the United States must be "declared The Customs Duty Rate is a percentage This percentage is determined by the total purchased value of the article(s) paid at a foreign country and not based on factors such as quality, size, or weight Tariff rates are divided into three categories according to the import source country's trade relationship with Vietnam: ordinary rates apply to goods imported from countries that have not exchanged normal trade relations (NTR) agreements with Vietnam; preferential rates apply to goods from countries that have exchanged NTRs with Vietnam; and special preferential rates apply to goods from countries that have made special trade arrangements with Vietnam Ordinary tariff rates are about 50% higher than preferential rates Special preferential rates vary by country There are also special consumption taxes (mostly on luxury goods) of up to 100%, a value-added tax (VAT) of 0–20%, and import quotas + Revenue from state-owned enterprises: A state-owned enterprise (SOE) is a legal entity that undertakes commercial activities on behalf of the state, its owner The legal status of SOEs varies from being a part of the government to being stock companies with the state as a regular stockholder The defining characteristics of SOEs are that they have a distinct legal form and are established to operate in commercial affairs and commercial activities While they may also have public policy objectives (e.g., a state railway company may aim to make transportation more accessible), SOEs should be differentiated from other forms of government agencies or state entities established to pursue purely nonfinancial objectives [1] Government-owned corporations are common with natural monopolies and infrastructure, such as railways and telecommunications, strategic goods and services (mail, weapons), natural resources and energy, politically sensitive business, broadcasting, banking, demerit goods (e.g. alcoholic beverages), and merit goods (healthcare) SOEs often operate in sectors in which there is a natural monopoly, or the government has a strategic interest However, government ownership of industry corporations is common Nationalization also forcibly converts a private corporation into a state-owned enterprise Some of the SOEs in Vietnam are: Airports Corporation of Vietnam;Bank for Investment and Development of Vietnam;Petrolimex;Petrovietnam;Vietnam Airlines;Vietnam Electricity;Vietnam Multimedia Corporation;Vietnam Posts and Telecommunications Group;Viettel Mobile;Vietnam Railways… + Foreign aid: The World Bank’s assistance program of foreign aid to Vietnam has three objectives: to support Vietnam’s transition to a market economy, to enhance equitable and sustainable development, and to promote good governance From 1993 through 2004, Vietnam received pledges of US$29 billion of Official Development Assistance (ODA), of which about US$14 billion, or 49 percent, has been disbursed In 2004 international donors pledged ODA of US$2.25 billion, of which US$1.65 billion was disbursed Three donors accounted for 80 percent of disbursements in 2004: Japan, the World Bank, and the Asian Development Bank During the period 2006–10, Vietnam hopes to receive US$14 billion–US$15 billion of ODA Analysis Vietnam government revenue: a) The change of State budget from 1986-2016: Sources: https://tradingeconomics.com/vietnam/government-revenues => Comment: * The bar chart illustrates the amount of money Vietnam government received between the years 1986 and 2016 at 30year intervals According the bar chart above, you can be seen Government Revenues in Vietnam increased to VND 1,101,377 billion in 2016 from VND 996,870 billion in 2015 Government Revenues in Vietnam averaged VND 272,110.25 billion from 1985 until 2016, reaching an all-time high of VND 1,101,377 billion in 2016 and a record low of VND 19 billion in 1985 * More details: Vietnam government has a lot of sources to receive budget, but have four main activities contribute to the budget, such as, domestic revenue, oil revenue, net revenue from import-export activities Unit: billion VND Domestic revenue Net revenue from import-export activities Oil revenue Grants 900,000 785,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 172,000 132,000 63,400 40,000 54,500 2,500 2016 2006 3,000 According the bar chart above as you can be seen, + Domestic revenue increased dramatically from VND 132,000 billion to VND 785,000 billion in 2016 + In 2016, oil revenue decreased VND 8,900 billion from VND 63,400 billion in 2006 + With the contribution of Net revenues from import-export activities, an increasing at VND 172,000 billion in 2016 + Grants: growing a little bit during 10-year from VND 2,500 billion to VND 3,000 billion b, Analysis Vietnam’s government in 2017: Unit: billion VND 1200000 Domestic revenue Net revenues from import-export activities Oil revenue 990,280 1000000 800000 663,700 600000 400000 214,000 200000 38,300 34,000 180,000 The first months 2017 Forecast 2017 This bar chart above show to you about the result of the first nine months 2017 to receive for state budget More details: + Domestic revenue: after the first nine months had VND 663,700 billion = 67% forecast and increase 11.4% compared with the same period 2016 + Oil revenue: the contribution of oil revenue to the state budget in the first nine months is VND 34,000 billion and achieved 88.9% of forecast, increase 15% compared with the same period 2016 + Net revenues from import-export activities is VND 214,000 billion = 75.1% of forecast and increase 10.5% compared with the same period 2016 *Vietnam government budget: Sources: https://tradingeconomics.com/vietnam/government-revenues Government Budget is an itemized accounting of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments) A budget deficit occurs when a government spends more money than it takes in So, as you can see in the bar chart, generally, during from 2006 to 2016, the government budget is deficit Especially, in 2013 the percentage deficit is –5% of GDP => Therefore, countries always find the way to increasing the value of the budget and reducing the budget deficit 3, Solutions to raise State budget revenues: With an increase by 500.9 trillion VND in State budget revenues at the first half of 2017, the Government is striving to solve difficulties and raise State budget revenue in the next months a Continue to implement drastically the solutions proposed by the Government in Resolution No 01 / NQ-CP dated 01/01/2017, Directive No 14 / CT-TTg dated 19/4/2017 of 10 the Prime Minister and the Resolution No 01 / NQ-CP issued in conjunction with Decision No 33 / QD-BTC dated 9/1/2017 with particular concentration on solutions related to tax administration such as: drastic implementation of raising State budget revenue at the beginning of the year; Closely coordinate with the ministries, branches and agencies in executing macroeconomic policies, controlling inflation,… b Direct the tax departments and local customs agencies to drastically implement the collection management solutions, striving to complete the target c Continue to improve the propaganda of tax policies, customs policies, administrative formalities in all phases, divisions and fields through innovating the modalities and developing diverse forms of propaganda d Promote the inspection and supervision on enumeration of taxpayers Focus on checking the declarations of contradictions, the hidden business lines with insufficient tax declaration, resolutely sanction violations on tax declaration and payment e Strive to reduce the tax debt to total budget revenue ratio, following Directive No 14 / CT-TTg of the Prime Minister, not to generate new debt, review debt classification, analyze the causes of each case to apply debt recovery measures, disclose information on taxpayers who not pay taxes on time f Accelerate the administrative reform; continue applying technologies in all steps, ensuring transparency, fairness, creating favorable conditions for taxpayers, raising the efficiency of tax management, … g Continue to simplify administrative procedures, reduce customs clearance time, reduce costs for customs and businesses, reduce the time required to complete import and export procedures of enterprises, striving to shorten customs clearance time to the average level of ASEAN-4 countries h Promote the cooperation with the region and the world to enhance the information and experience of tax administrations, especially in new and complex fields such as transfer pricing, e-commerce, via-bank payment, the fields of "economic sharing" i Strengthen the control and management; prevent smuggling, trade fraud, taxation, …timely detect 11 shortcomings and inadequacies in management so as to reduce smuggling, trade frauds and counterfeit goods III/ SPENDING: 1.Definition of government spending: Government spending means the distribution and use of the state budget funds to ensure the performance of the state functions in accordance with certain principles The state budget expenditures are the process of redistributing financial resources that have been converged to the state budget and bringing them to the intended use Thus, the state budget expenditures are specific tasks that are not only limited to orientations but also must be allocated to each objective, activity and task of the nation a Characteristics of government spending: • Government spending associated with the apparatus of government and the economic, political and social tasks that the state assumes before each country The larger the state apparatus, the larger the scope of government budget • The highest power organization of the state is the sole subject that determines the structure, content and extent of government spending because it determines the economic, political and social tasks of country, that organization expresses the will of all people • The state budget expenditures are considered the effectiveness on a macro level That means that the effectiveness of government spending must be comprehensive considered based on the accomplishment of the socio-economic objectives that the budget expenditures responsible • Government spending is non-repayable that means that not all amounts with the level and number of specific addresses are reimbursed under the state budget expenditures Therefore, the state budget expenditures are clearly distinguished from government credits • The state budget expenditures are closely linked to the movement of other value categories such as prices, interest rates, exchange rates, salary, credits, etc (monetary categories) Thus, being aware of this relationship has significant in the closely combination of budget policy and monetary policy, income policy 12 in the process of implementing macroeconomic objectives (growth, jobs, price stability, balance of payments equilibrium, etc.) b Content of government spending: The government spending includes main expenditures: Development investment expenditures is the spending task of the state budget, including expenses for capital construction investment and some of other investment spending tasks in accorded to regulations of the law Development investment expenditures include: • Capital investment expenditure • Loans to the ethnic minorities in specially-difficult conditions • Transfers to Promotion of trade, tourism, and investment • Subsidize discrepancies of provision of concessional credit interests • Contributions to international financial organizations • Transfers chartered capitals to Public Utilities, enterprises in the eco-military zone Repayment of debt and provision of aids are the task of the state budget to pay debts due, including principal, interest, fees and other expenses arising from the borrowings Repayment of debt and provision of aids include: • Repayment for domestic borrowings • Repayment for external borrowings • Aids provision expenditure Expenditure on socio-economics, defense, public security, public administration, party and unions are expenses not to create material products for consumption in the future, including expenditures to maintain the state's regular activities Expenditure on socio-economics, defense, public security, public administration, party and unions include: • Defense • 13 Public security • Specific expenditures • Sports • Education and training • Pension and social reliefs • Health care • Economic services • Environment protection • Population and family planning • Science and technology • Culture and information • TV and radio • State administrative management • Price support to goods items by policies • Other expenditures Salary reform expenditure is a funds of the state budget to downsize the personnel, restructure and improve the quality of the contingent of cadres, civil servants and employees, ensuring that by 2021, it will reduce 10% of the assigned staff in 2015 Contingencies are an item in the unallocated budget expenditure estimate that has been decided by the competent authority at each budget level 2/ Plan of central budget expenditures over the years: Government Spending in Vietnam increased to VND 293,105.82 Billion in 2016 from VND 265,545 Billion in 2015 Government Spending in Vietnam averaged VND 82,391.66 Billion from 1990 until 2016, reaching an all times high of VND 293,105.82 Billion in 2016 and a record low of VND 3,164 Billion in 1990 Vietnam budget government mainly spends on many sectors like Development investment expenditures; Repayment of debt and provision of aids; Expenditure on socio-economics, defense, public security, public administration, party and unions; Salary reform expenditure and Contingencies In billions of dong 14 800.00 15.80 700.00 600.00 429.21 404.63 43.30 500.00 400.00 300.00 100.20 4.99 155.10 200.00 100.00 - 76.39 197.70 40.80 46.18 2006 2007 2008 2009 2010 2011 Development investment expenditures Normal expenditure Contingencies 2012 2013 2014 2015 2016 2017 Repayment of debt and Provision of aids Salary reform expenditure Plan of central budget expenditure by sector from 2006 to 2017 Source: Ministry of finance As we can see from the column chart above, "Expenditure on socio-economics, defense, public security, public administration, party and unions" always takes the highest portion of Government spending For 11 years, this item increased from VND 76.39 billion to VND 404.63 billion, (or increased approximately 430%) It reached a peak at VND 429.21 billion in 2016 "Development investment expenditures" fluctuated between 2006 and 2017 The lowest setting is VND 46.18 billion in 2006 It also peaked at VND 197.7 billion in 2017 " Repayment of debt and provision of aids" experienced a similar status, it fluctuated between 2006 and 2017 The lowest setting is VND 40.80 billion in 2006 It also peaked at VND 155.10 billion in 2016 "Salary reform expenditure" and "Contingencies" take a small portion in this structure Because "Normal expenditure" keeps the largest portion in the Government spending structure, so, we analyze more detail about "Expenditure on socio-economics, 15 defense, public security, public administration, party and unions" over the years Education and training Pension and social reliefs Environment protection Health care Economic services State administrative management 100 94.8 90 85.838 80 70 60 50 45.245 40 34.604 30 20 19.542 10 10.056 6.117 4.294 2006 2007 18.637 32.18 22.194 11.401 2008 2009 2010 2011 2012 2013 2014 2015 2016 1.88 2017 Plan of Normal expenditure Source: Ministry of finance As we can see, Vietnam Government specially focus on "Pension and social reliefs", it always keeps the largest portion of the whole structure During 11 years, this item increased from VND 19.542 billion to VND 85.838 billion, (or increased approximately 339%) It reached a peak at VND 94.8 billion in 2016 "State administrative management" have had a tendency to go up: from VND 6.117 billion in 2006 to VND 45.245 billion in 2017 "Education and training" has undergone many changes, started at the lowest level of VND 10.056 billion, then reached a peak at VND 34.604 billion in 2016, but immediately decreased to VND 22.194 billion in 2017 "Economic service" increased steadily over 11 years and peaked at VND 32.18 billion in 2017 "Health care" was quite fluctuant In general, it increased, and peaked at VND 18.637 billion in 2016 But in 2017, it saw a sharp drop down to VND 11.401 billion 16 "Environment protection" is important sector that Government should be concerned, but Government spends less on this item The highest level was VND 1.88 billion *PLAN OF GOVERNMENT SPENDING IN NORMAL EXPENDITURE IN 2017 21% Education and training Health care, Population and family planning Science and technology Culture and information TV and radio Sports Pension and social reliefs Economic services Environment protection State administrative management 10% 5% 4% 1% 1% 0% 1% 15% 41% Source: Ministry of finance In 2017, Government spent a lot of money on "Pension and social reliefs" – 41% in total Normal expenditure, follow by "State administrative management" with 21%, "Economic service" with 15%, "Education and training" with 11%, etc … 3) A series of solutions to reduce overspending, to restructure public debt: a) Resolutely cutting down on inefficient, unnecessary projects: To promote restructuring, improve the efficiency of public investment To review the list of investment programs and projects funded with state budget capital, public debt capital, resolutely cutting down programs and projects which are not effective and not necessary Continue to revise and improve the Law on Public Investment, fundamentally renovate the institutional framework for public investment management, especially the project formulation and evaluation, appraisal of the 17 project and the mechanism for assessing the socio-economic efficiency after the project has been put into use To review and renovate to further encourage private investment and foreign direct investment in socio-economic development To adopt policies to prioritize the attraction of foreign direct investment in advanced, modern, high technology and environmentally friendly technology projects b) To concentrate on restructure state budget revenues and expenditures: Other tasks and solutions are to restructure state budget revenues and expenditures, strengthen public debt management, and ensure the safety and sustainability of the national financial system To strictly abide by the principle that loans for offsetting the State budget deficit can only be used for development investment and not used for regular expenditures; To strive to reduce the State budget deficit to a minimum level as set by the National Assembly's Resolution, step by step increase the accumulation for development investment and repayment of loans, increase the state reserve c) Strengthening the discipline and discipline of finance state budget and public debt: Tighten fiscal discipline, budget, public debt; To make revenues and expenditures within the scope of estimates, borrowings and disbursements within the plans and the limits decided by competent authorities; To promulgate mechanisms and policies on expenditures only when financial sources are ensured; To minimize the advance of estimates, transfer of sources, adjustment of total investment in programs and projects funded with loans; Completing the final settlement of construction debts and not creating new capital construction debt To intensify the settlement of completed projects funded by the State capital, thoroughly settle the situation of outstanding settlements and strictly implement the sanctioning measures for handling violations in the settlement of completed projects 18 ... frauds and counterfeit goods III/ SPENDING: 1.Definition of government spending: Government spending means the distribution and use of the state budget funds to ensure the performance of the state... a Characteristics of government spending: • Government spending associated with the apparatus of government and the economic, political and social tasks that the state assumes before each country... to raise State budget revenues: III SPENDING 10 Definition of government spending: 10 Plan of central budget expenditures over the years: A series of solutions to reduce overspending, to restructure