25.6 Budgeting Democratization: The Rise of the
25.6.2 The Rise of the Legislature in Local Budgeting
At the local level, the rise of the legislature in the budgetary process was much more impressive. To fulfill the budgetary power that the 1982 Constitution granted to the legislature, local legislatures have passed many local statutes defining the legislature’s supervision of governmental bud- gets. In 1988 the Anhui Provincial People’s Congress (PPC) passed a statute defining the legislative supervision over the governmental budget. In the early 1990s more than ten provincial legislatures passed similar local statutes, such as Sichuan, Hebei, Sanxi, etc. At present almost all provincial legislatures have passed supervision statutes. Meanwhile, in the 1990s, to facilitate the legislative supervision of the use of extra-budgetary funds, some PPCs passed statutes over extra-budgetary funds (Liu, 1999; Yu and Chen, 2003).
Moreover, in the 1990s, especially after the passage of the 1994 Budget Law, there was an increasing trend for local legislatures to become a possible counter-balance to the government in the budgetary process. In Raoyang, Hebei Province, when the county legislature examined the 1995 governmental budget, it twice vetoed the county governmental budget because the budget failed to guarantee public school teachers’ wages and had a fiscal deficit. As a result, it took more than three months for the governmental budget to be approved. This is an unusual phenomenon in Chinese polity (Liu, 1999). On May 25, 1998, when the Standing Committee of Hunan PPC received the audit report of budget execution of the 1997 budget, it found that the provincial Immigration Department had embezzled immigration funds to build an immigrant training center. The committee members were shocked by this change. After some investigations, twenty congress members proposed a bill concerning this event. In November the provincial government reported its investigation and specific solutions to the legislature’s standing committee. The investigation revealed that the department illegally transferred RMB 43.23 million yuan to build luxury offices, hotels, and even entertainment facilitates (Xu, 2002). In 1999, in the second session of the Ninth Term of Henan PPC, twenty PPC representatives proposed a bill questioning the construction department’s illegal use of housing procurement funds for public housing reform. After examining
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the response provided by the construction department, the representatives were dissatisfied with the department’s explanation and required further reasonable justification. As a result the construction department had to promise to return the funds it had misused (Xu, 2002).
However, until the recent departmental budgeting reform, these legislative efforts were sporadic. Additionally, the legislatures in general did not effectively supervise the governmental budgets. The departmental budgeting reform makes it possible that the legislature can effectively supervise the governmental budgets, because the budgeting reform not only requires the government to submit its budget to the legislature for examination and approval, but also to provide budgetary information about each spending department. Local legislatures fully recognize the opportunity that the budgeting reform provides them and are actively involved in the reform. Now, almost all of the provincial legislatures have established budgeting branches to examine and supervise the governmental budget.
Several provincial legislatures established a Special Budgeting Committee under the PPC, while most of them established a Budgeting Committee under the legislature’s standing committee (mainly The Fiscal and Economic Committee). The distinction between a Special Budgeting Committee under the PPC and a Budgeting Committee under the PPC Standing Committee is that the former has the power of drafting and inspecting besides the power of supervising that the latter has. The creation of budgeting branch within the legislature, especially the creation of the Special Budgeting Committees, greatly increases legislative capacity in the budgetary process.
Among all local governments, Guangdong and Shenzhen might be the most impressive cases demonstrating legislative efforts in democratiz- ing public budgeting in China. Before the departmental budgeting reform, Guangdong provincial government provided only a very simple and sketchy budget draft to the PPC for examination. Usually, the draft was one page in length. In 2001, for the first time, the governmental budget proposal submitted to the PPC included the information of seven departments’
expenditures and revenues. In 2002 the departmental budgeting reform was extended to twenty-seven departments. In January 2003 Guangdong pro- vincial government made a large stride in submitting to the PPC a bud- get draft as thick as 602 pages, including information on all departments’
budgets (102 departments), and covering 97% of budgetary expenditures.
Moreover, when the legislature examined the 2003 budget, some rep- resentatives of the PPC showed increasing interest in budgeting exami- nation. For example, some of them openly questioned and attacked an expenditure program of a department’s budget, which allotted more than RMB 10 million yuan to build a day care center for the department’s employees. Other representatives, led by Ms. Xiaoyun Liao, a representative from a business company, proposed a revision bill to the budget draft,
asking for inclusion of a basic health care insurance fund in the govern- mental fund budget. This is the first case in China’s budgeting history that representatives proposed a revision bill to the governmental budget. The PPC gave serious consideration to this revision bill and had a special meeting to address this requirement. Finally, the legislature meeting con- cluded that the legislative was unable to include this bill in the agenda because the provincial legislature does not have the legal power to establish a new type of social insurance fund, which is under the authority of the central government (Anonym, 2003b).
The experience of Shenzhen in improving the legislature’s role in the budgetary process has been more successful than that of the Guangdong provincial legislature. In 1995 the PPC’s Standing Committee established a Planning and Budgeting Supervision Committee (PBSC), responsible for examining and supervising the governmental budget. In 2000 the PBSC was promoted as an independent committee, called the Special Committee for Planning, Budgeting, and Supervision (SCPBS). In Shenzhen, early in 1997, the legislature viewed the departmental budgeting reform as the ‘‘break- through point’’ to improve the legislature’s role in the budgetary process.
Therefore, during the past seven years, the legislature has been a driving force to implement and improve the departmental budgeting reform. To make the legislature’s supervision effective, the legislature has made the following innovations.
First, it attempts to normalize the structure, format, and contents of the budget, and to promote budgetary transparency. For example, to improve the allocation efficiency and budgeting transparency, it requires the imple- mentation of comprehensive budgeting principles, combining the budgetary revenues and extra-budgetary revenues together in the budgeting decisions.
The SCPBS also emphasizes the link between the budget appropriations and the work the department has to accomplish. To facilitate the examination of the budget by the representatives, the legislature requires that when government compiles budget proposals, it must make the budget easy for the representatives to understand, for example, including written description of the programs and the expenditure objections (GDPPCBSO, 2003).
Second, due to the limitation of staff size in the SCPBS, the legislature invented two methods to conduct the examination of the governmental budget during the process of budget formulation: (1)Selective Supervision.
In the process of budget formulation, before the budget is submitted to the PPC, the budget is submitted to the PPC’s Standing Committee for preliminary examination. However, since the legislative representatives serve the legislature part time and the legislature’s full time staff is limited, it is impossible for the legislature to conduct a comprehensive and in-depth budgetary examination in the preliminary examination. To solve this problem and to conduct an effective budgetary supervision, Shenzhen’s
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legislature has decided to adopt a strategy of selective supervision; that is, during the preliminary examination stage, several departments that citizens are most concerned with (such as the Police Department, the Environment Department, and the Education Department) will be selected as the targeted departments whose budgets will be examined comprehensively and in depth by SCPBS. (2)Specific Topic Supervision. During the annual People’s Congress Meeting, to conduct an effective budgetary examination, the PBSC organizes the representatives by important topics and issues that might have great impacts on citizens’ lives and social welfare. Usually, the representa- tives who hold fiscal expertise and are familiar with the operations of these relevant departments are selected to have a face-to-face discourse with the heads of the government’s finance bureau and relevant departments (GDPPCBSO, 2003).
Third, Shenzhen’s legislature is also actively involved in the budgetary execution. For many years, a persistent problem in budgetary execution in China has been the delay in authorizing approved budgetary appropria- tion to the departments. To solve this problem, the legislature in Shenzhen requires that the governmental finance bureau authorize the budget approved by the legislature to spending departments within one month after the annual congress and then report the authorization to the legislature.
Besides this, the legislature has succeeded in solving two persistent problems in Chinese budgetary execution. The two problems are: (1) The allocation of revenues over the revenue forecast is always beyond the control of the legislature. The government tends to report to the legislature after these revenues have been appropriated to spending departments.
In certain cases, the government even chooses not to report to the leg- islature; and (2) The budgetary adjustment is frequent and arbitrary. And, more seriously, the government tends to make adjustments to the approved budget without asking for the permission of the legislature in advance.
During the past few years, Shenzhen’s legislature has made great efforts to strengthen the legislature’s supervision in these two areas. The legislature requires the government to ask the legislature’s permission before it makes any budgetary adjustment and budgeting decision on over-collected reve- nues. During the past five years, the legislature have vetoed and changed some of the government’s budgeting decisions in these two areas, which is quite seldom in Chinese budgeting history. For instance, during the past several years, for the over-collected revenues, the legislature discovered RMB 8.16 billion yuan illegal expenditures and vetoed and changed eight governmental programs involving revenues as much as RMB 1.9 billion yuan. The legislature also established rules on the use of the over-collected revenues, for example, setting in advance their expenditure objections.
In the budgetary execution, the legislature also adopts the strategy of selective supervision to oversee the budget execution of important
departments with a large amount of public expenditure and important public programs. The legislature requires that the government’s investment programs be submitted to the legislature for examination, and only programs approved by the PPC to be included in the governmental budget. Moreover, the legislature asks the audit department to conduct a performance audit of important programs that citizens most concern with or that involve a large amount of expenditures, and then report the audit results to the legislature (GDPPCBSO, 2003). Because China uses internal government audits,10 the effectiveness of such an auditing strategy has been questioned. However, in the Shenzhen case, with the legislative efforts, the audit department has proved to be an effective and cooperative agency in overseeing the budget execution. For example, on December 22, 2003, according to the audit report of the 2003 budget execution, there were four large programs involved in fiscal losses, misappropriation, and waste. This resulted in an
‘‘audit storm’’ in Shenzhen (Lei, 2004), also making the government feel it is going through a tough period. It is quite an unusual phenomenon in Chinese polity.