ABSTRACT
Since the 1994 “tax sharing” reform, while about equal shares have been generally observed in terms of total volume of government revenue at the level of the central government and that of the local provincial governments, the comparison between revenues and expenditures shows that practically every local provincial government annually had registered a budget deficit in relation to the central government’s budget surplus (Gao, 2007: 188–189). The extent of the deficit has been huge, especially in those local governments in the western part of the country, and this has greatly constrained local governments’ ability to take care of anything in excess of their very basic fiscal expenditure responsibilities, hence making the central government obliged to take up social welfare responsibilities even at the local level, especially health care (Gao, 2007). Going back to the details of “tax sharing”, the fiscal reform in 1994, at least in the short term, has been seen to result in centralisation or recentralisation after the large extent of decentralisation during the earlier reform period. As a result, the Chinese central state’s fiscal power has been greatly strengthened in relation to local government (difang) in terms of the division of taxes. “Tax sharing” (fenshuizhi) divided the taxes into the central taxes, local taxes and shared taxes. This chapter critically examines poverty reduction, welfare provision and social security challenges in china against the policy context of finical reform after the 12th Five-year Plan.
