China's cash-strapped local gov'ts resort to heavy fines to boost revenue
Huang Pei-chun and Staff Reporter 2012-10-16 17:41
An electronic sign dispalys the speed of a bus. (Photo/Xinhua)
Faced with declining revenues due to the current economic downturn, cash-strapped local governments across China are struggling to get funding from various sources, Chinese media report.
The reports state that in their bid to augment revenue, some local governments have resorted to more restrictive speed limits for motorists, while others have even gone so far as to hold police to annual minimum quota for fines levied. Some governments have chosen to levy taxes for the next fiscal year in advance.
Financial news website Ennweekly.com said instances of local governments imposing extraordinarily heavy fines have been frequently reported in the second half of 2012.
Local governments have launched various other measures to replenish the city's coffers, including the introduction of harsh highway vehicle inspections forcing car owners to line up at toll stations to settle fines. Setting tighter speed limits has also caused a sharp increase the number of fines imposed on road users.
In some cases, limited local government treasuries have made it impossible for law enforcement departments to pay salaries to public workers. These offices were not only using revenues sourced from fines to cover expenditures but also funds set aside to cover wages owed to contract employees.
In August, the director of a road traffic station located in impoverished Lindian county, in far northeastern Heilongjiang province, said the salaries of half of the station's forty workers had been paid with government funds, while the remainder was sourced from revenues generated through the imposition of fines.
Data showed that owing to the sharp fall in land revenue, not only poorer counties and cities, but big cities have also had to rely on non-tax revenues to support their expenditure. For instance, in the first half of this year, Guangzhou's additional operating funds were drawn mainly from non-tax revenues, which accounted for 97% of they city's total revenue. Meanwhile, Shenyang's non-tax revenues in the first half of this year reached 7.7 billion yuan (US$1.22 billion), a 55% increase over same period last year.
One expert said that the severe financial strain faced by local governments was due mainly to an imbalanced allocation of cash between the central and local governments. This is because the majority of tax revenues find their way to Beijing while local governments continue to be burdened with huge expenditures.
The expert suggested that the government should reform the tax and financial systems following this year's 18th National Congress which will help ease the financial burden on enterprises and local governments.
However, some commentators are divided in their views on what direction future policies should take as China's economy shows signs of bottoming out. Most economists said economic growth would rely on investment, particularly in infrastructure construction, and the allocation of revenue must be reformed, the Economic Observer said.
In a recent survey of economists seeking their views on the future direction of economic policies, 36% of respondents said tax cuts were the most effective way to boost the economy, while 27% pointed towards adjusting industry policies; 21% suggested expanding investments and a mere 4% said monetary policies should be relaxed.
Asked whether the economy had bottomed out, 35% of economists believe the economy hit its nadir during the third quarter of this year, while 19% said the fourth quarter is more likely. A further 33% said the bottom would be reached sometime during first quarter of 2013 and 7% said the low-point will be reached in the second quarter of next year.
Additionally, 59% of respondents predicted that the rate of GDP growth in the fourth quarter of this year will fall between 7% and 8%, while 68% believe the government will lower banks' required reserve ratio (RRR) once in the fourth quarter of this year. Around 32% of respondents expect the RRR will be lowered twice and 52% predicted the government will not cut the benchmark interest rate. Conversely, 45% of respondents said the rate would be cut one more time and only 2% expect a second ratio cut.
In addition to tax cuts, a majority of economists believe the most effective policy to bolster the economy involves stepping up investments in infrastructure.
