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First, the concept and types of local financial risks
(A) What is the local financial risk
To put it simply, local financial risks refer to all kinds of explicit and implicit risks in the process of local financial operation, which is the concentrated expression of various contradictions in the corresponding government-level financial field in the process of local economic and social development.
Because the economic environment, social environment and policy environment faced by local financial operation are always changing, it is easy to cause the government to be unable to provide basic public products and services needed for local social and economic development, as well as problems such as government debt default, arrears of civil servants' wages and pensions. The characteristics of local financial risks in China are that the financial risks of lower-level governments are often higher than those of higher-level governments, and the financial revenues and expenditures in the western region are worse than those in the eastern developed regions.
(B) the types of local financial risks
1. Local fiscal revenue risk
The risk of local fiscal revenue is mainly manifested in the widening gap between local disposable income and public demand and the increasingly prominent contradiction between revenue and expenditure, which weakens the government's ability to resist risks. At present, China's local governments are slow to increase their income, which not only lacks stable financial resources as the basis, but also has a single source of fiscal revenue and a simple structure. Some local governments rely too much on the tax revenue of several large local enterprises and companies, while others rely on a single tax source formed by their special geographical location or natural conditions.
2. Risk of local fiscal expenditure
The risk of local financial expenditure refers to the risk that local finance partially loses its basic functions due to insufficient income, which is mainly manifested in the fact that some local government departments' statutory expenditures such as staff salaries, office expenses, education, health, agriculture, and public security law funds cannot be allocated in full and on time, which affects the performance of government functions and the stability of social and economic order.
3. Local government deficit and debt risk
In recent years, China's local transportation, energy and other infrastructure construction and technological transformation of some state-owned enterprises mostly rely on loans from international financial organizations such as state-owned commercial banks, the central government and the World Bank. These debt funds tend to pay more attention to quantity than quality to varying degrees, which leads to the unsatisfactory economic benefits of many public investment and production investment projects supported by them, and the task of repaying loans falls on local finance. If local governments don't have enough reserves, or can't handle the contradiction between debt repayment and local development, they will fall into a long-term debt crisis.
Second, a brief analysis of the causes of local financial risks
(A) the existing financial management system is flawed
1. Unreasonability of current tax-sharing system
Ten years after the reform of China's tax-sharing financial system, a virtuous cycle mechanism between finance and economy, central finance and local finance has been initially established, but there are still some defects, which lead to financial operation risks such as unstable local fiscal revenue. The main manifestations are: the power and financial power of governments at all levels are not unified, the scope of expenditure is not clear, the central financial power is too concentrated, the local disposable financial resources are relatively reduced, and local governments have no tax legislative power, which is not conducive to expanding the field of financial management.
2. The intergovernmental financial transfer payment system is not perfect.
China's current tax refund neither takes into account the objective differences in income capacity and expenditure demand in various regions, nor lacks reasonable standards. As a result, the fiscal gap between regions has not narrowed, but has widened. At the same time, there are many problems in the special subsidy system, such as the random distribution of special funds in various regions, the wide use of special funds, the lack of emphasis, and the difficulty in ensuring earmarking. These problems greatly weaken the role of transfer payment in solving the financial difficulties of local governments and preventing financial risks.
(B) the weakening of local financial budget management led to the expansion of expenditure.
Under the influence of China's investment-driven economic growth model, the government gradually broke the rules that "local governments should not be in deficit" and "local governments should not be in debt", and weakened the government budget under the pretext of developing the economy. However, the defects of government budget management system and the weakening of management constraints condone the continuous expansion of fiscal expenditure and directly induce local financial risks.
(C) the government's blind financing led to an increase in the degree of financial risk
Although debt funds have promoted local economic growth, they have also made local governments bear a heavy debt burden. Inadvertent borrowing and inability of local governments to repay loans are likely to generate financial risks. There are such problems in the financing activities of local governments in China: the government relies too much on borrowing in the absence of direct financing means, there is no legal provision suitable for local governments to engage in financing activities, and there is a general lack of relatively independent policy financial institutions to coordinate and manage financing operations, making it difficult to scientifically plan and effectively control the total amount of financing.
Third, the government's financial risk prevention measures
Overcoming local financial difficulties and resolving local financial risks in time is of great significance for preventing China's overall financial risks and establishing a stable and balanced local and even central financial operation mechanism. Therefore, on the basis of the previous analysis, this paper expounds the reform suggestions to prevent local financial risks.
(1) Reform the tax-sharing system and improve the transfer payment system.
1. Reform the current tax-sharing system
In view of China's tax-sharing situation, we should readjust the ownership of various taxes among governments. At present, China has changed corporate income tax into proportional income tax, and also adjusted personal income tax into central and local income tax. Next, we should gradually establish a local tax system with business tax, local enterprise income tax and urban and rural maintenance and construction tax as the main taxes, and finally include property tax.
2. Reform the current transfer payment system.
Only after the problem of tax ownership of governments at all levels is basically solved can a standardized financial transfer payment system be established. Specific improvement measures include:
First of all, scientifically define the financial rights and powers of governments at all levels. The central government should be mainly responsible for macro-control, and local governments should be responsible for the management of most public affairs. And reasonably divide the scope of expenditure according to their respective powers, so that the central and local powers are borne by themselves, and the rights of central and local colleagues are determined by institutionalized means.
Second, gradually establish a transfer payment system that measures standard income and standard expenditure according to objective factors. These factors include: general factors such as population and area, infrastructure factors such as transportation and resources, social development factors such as the level of science, education, culture and health services and the scale of administrative institutions, economic development factors such as per capita GDP, and special factors such as western regions and ethnic areas. Determine the amount of transfer payment according to the influence degree of factors.
Third, simplify the form of transfer payment. Simplify all kinds of adjustment ways to safeguard vested interests into a single "tax return" way, and then gradually reduce the tax return increment in rich areas and increase the tax return increment in poor areas.
Fourth, clean up the existing special funds and improve the distribution method. A complete transfer payment system not only refers to balanced distribution, but also includes special transfer payment. Special funds should be reasonably divided into special funds for central burden affairs, special funds for central entrusted affairs, special subsidies for awards, special subsidies for regional development or special policy objectives, and other special special subsidies.
(2) Improve government budget activities and establish a scientific and reasonable financial budget system.
1. Adopt standard periodic budget management system.
As far as China is concerned, in order to solve the problems brought about by the budget year, we can adjust the convening time of people's congresses at all levels, or adopt an annual arrangement of cross-annual budget, so that the budget year can be linked with the time limit for people's congresses to approve the draft budget.
2. Reform the system of setting up budget subjects.
According to the guiding ideology of establishing China's double budget system, the setting of budget subjects should reflect the functional requirements of double budget as much as possible, and the basic framework should be the budget structure of government public budget, state-owned capital budget, social security budget and financial investment and financing budget.
3. Reform the budget review system
Budget examination and approval is a policy, legal and technical work. At present, the approval of the draft budget by the National People's Congress is only a formality. Therefore, it should be suggested that people's congresses at all levels set up special working institutions, formulate corresponding working systems, and conduct substantive review of the draft budget.
4. Reform the budget execution supervision system.
In order to reduce financial risks, it is necessary to effectively supervise all aspects of budget implementation and form a supervision mechanism combining internal supervision with external supervision, that is, to strengthen the functions of financial supervision, audit inspection and administrative and legal supervision.
(C) to further standardize local government debt management
To improve local government debt management, it is necessary to scientifically and reasonably formulate medium and long-term plans for government borrowing and strictly define the investment scope of debt funds. Strengthen the main position of finance in local government debt financing and implement centralized management of government debt. The financial department shall not be liable for compensation for enterprise loans that do not belong to government debts. At the same time, by giving local governments appropriate creditor's rights, the openness and transparency of local debt can be realized. In addition, relevant laws and regulations on local government debt financing management should be formulated to manage money according to law.
To sum up, China's local financial risks are objective. If it is not properly controlled, it will cause economic harm and political turmoil. Therefore, we must attach importance to financial risks and strive to build specific measures to prevent, control and resolve risks.
"reference materials"
1. Huang Yun: On the Characteristics and Prevention of Local Financial Risks in China, Journal of Central University of Finance and Economics, No.2, 2002.
2. Tian Shuying: Rational Thinking on China's Financial Risks, Economic Research Reference, No.2, 2002.
3. Zhang Zhichao et al.: Financial Risk, China Financial and Economic Publishing House, 2004.