Summary of Key Points
Amidst the intensifying contradiction between local fiscal revenue and expenditure, Chongqing has introduced a comprehensive plan to deepen the zero-based budgeting reform. By breaking away from the traditional budgeting approach of adjusting amounts based on past figures, the city aims to shift to a system where expenditures are determined solely by actual needs. The goal is to optimize the fiscal expenditure structure by the end of 2026 and improve fiscal management by the end of 2027. Key aspects of the reform include unifying budget allocation rights, coordinating resources, and breaking down rigid budgets. Additionally, measures such as strengthening budget constraints and linking expenditures with performance outcomes have been implemented. Previous pilot programs have helped to gradually establish acceptance of the zero-based budgeting concept.
Detailed Explanation
1. Zero-Based Budgeting: Not Relying on Past Performance, but Planning Based on Needs
The core of zero-based budgeting is to start from scratch—regardless of how much money a department spent last year, each expenditure must be re-evaluated for necessity this year. For example, if a department had a budget of 1 million yuan last year and it automatically received a 10% increase to 1.1 million yuan under the traditional budgeting method, with zero-based budgeting, the question would be: “Does this department really need 1.1 million yuan this year? Are there any areas where costs can be reduced?” This approach is similar to how we manage our personal finances: instead of giving a fixed amount of money each month (e.g., 1000 yuan for pocket money), we allocate funds based on actual needs—more if books need to be bought, less if there are no special expenses.
2. Why the Reform Now?
The pressure on local finances is increasing: Chongqing’s general public budget revenue grew by 5.2% in the first half of the year, but expenditures only increased by 1.6%. Revenue from government-owned funds (mainly from land sales) decreased by 27.6%, and expenditures dropped by 32.5%. This has led to greater financial constraints. Moreover, there are issues with rigid budgeting practices, such as:
- Some departments continuously requesting higher budgets even when their tasks have decreased;
- Urgent projects (such as those related to people’s livelihoods and industry development) lacking funding, while inefficient projects continue to consume resources;
- Dispersed budget allocation rights, resulting in funds being allocated without being targeted specifically to specific projects, making it difficult to coordinate effectively.
Zero-based budgeting aims to address these issues and ensure that limited funds are used where they are most needed.
3. Chongqing’s Reform Focus: Four “Unifications” and Three “Rigid Baselines”
Chongqing’s plan focuses on four key areas:
- Unify Allocation Rights: Departments wishing to increase expenditures (e.g., for new special funds or salary raises) must obtain approval from the financial department to prevent wasteful spending.
- Coordinate Resources: Revenue from state-owned enterprises and administrative fees should be included in the budget to prevent funds from circulating outside the official system. Any unallocated funds by the end of June will be reclaimed and reallocated.
- Centralize Policy Management: All expenditure policies must be approved by the finance department to avoid departmental autonomy.
- Prioritize Major Initiatives: Priority should be given to major strategic projects (such as the Chengdu-Chongqing Twin-City Economic Circle) and projects that benefit people’s livelihoods.
At the same time, three rigid budgets need to be broken:
- Departmental budgets: No longer based on past figures; instead, they will be determined according to current tasks and needs.
- Special Projects: No reserved amounts; funds will only be allocated to well-established and high-quality projects.
- Transfer Payments: Funds allocated to districts and counties will be adjusted dynamically based on their development needs and financial capabilities.
4. Challenges of the Reform
The reform touches on departmental interests, as departments that received more funding in the past may see reductions. However, previous pilot programs have been successful in fostering acceptance of the new approach:
- Three significant changes have been made: shifting from focusing on maintaining existing budgets to assessing actual needs; from evaluating whether projects exist to examining the rationality of spending criteria; and from decentralized management to centralized coordination.
- Most departments now understand the concept of funding based on performance—i.e., “How much money do I need for my tasks this year, not how much I spent last year?”
5. Supporting Measures to Ensure Reform Success
To ensure the reform is effective, Chongqing has implemented the following measures:
- Strengthen Budget Constraints: Prohibits the construction of unnecessary projects or excessive borrowing (e.g., building large squares without sufficient funds).
- Standardize Expenditure Criteria: Sets fixed standards for office and travel expenses to prevent fraudulent claims.
- Link Expenditures with Performance: Funds must be linked to outcomes; failure to achieve desired results will result in reduced funding for subsequent projects.
These measures aim to make spending more transparent and efficient, helping Chongqing to manage its finances more effectively during difficult times.
Conclusion
The zero-based budgeting reform represents a self-revolution that aims to improve the efficiency of fiscal resources by addressing entrenched interests. Chongqing’s approach serves as an important example for other regions facing similar financial pressures. For the general public, this reform means that government funds will be more effectively allocated to areas such as people’s livelihoods, education, and healthcare, ultimately benefiting all citizens.