Budgetary Collection and Spending Decentralisation

4:51:11 PM | 7/31/2014

To seek expert opinion for the Law on State Budget, with focus on enhancing decentralisation, empowerment and self-responsibility in budgetary collection and spending, as well as encouraging the highest level of local autonomy, the Ministry of Planning and Investment recently collaborated with the US Agency for International Development (USAID) to organise a seminar on “Enhancing the leading role of central budget in increasing development investment resources in association with amendments of the Law on State Budget.”
Raising local autonomy
The Ministry of Planning and Investment said the Law on State Budget was passed by the National Assembly in 2002 and has been in effect since 2004. This law has played an important role in improving State budget collection and spending, generating resources for investment and development, contributing to economic growth and transformation, solving social security issues like hunger eradication and poverty reduction, and ensuring national defence and security.
However, Do Trong Khang, Director of Finance - Monetary Department under the Ministry of Planning and Investment, said, after a long time in force, the law has demonstrated limitations and weaknesses needed to be remedied and revised immediately. He cited that the current highly-integrated budget allocation irrationalises the scope of budgetary collection and expenditure, the decentralisation of State budget, and the allocation of central and local collection duties. The current local budget balance, especially for provinces in need of State funding, causes the State Budget to disperse and break down central budget, especially for development investment.
Dr Le Quang Thuan, a policy consultant at the Institute of Financial Strategy and Policy under the Ministry of Finance, said the integrated budget system has weakened the independence and autonomy of lower governments. This constraint results in the excessive reliance of lower governments on the budget of higher governments. He added that most countries in the world have basically eliminated the integrated budget system and strongly shifted to independent governments who are empowered with self-financing which is placed under the supervision of the central budgetary agency.
Reasonable budget allocation
According to data from the Ministry of Finance, the ratio of central budget collection source on the total State budget collection fell from 65.7 percent in 2004 to 61.6 percent in 2012. The central budget to the gross domestic product (GDP) also declined from 17.5 percent in 2004 to 14 percent in 2012. The reduced accessibility to resources meant that the central budget had few resources to perform spending tasks. The expanded scale of local budget revenue helped increase the self-financing of localities though; it risked the “leading role of central budget”. Contrary to that, the State budget-sourced development investment capital has been on the rise. Specifically, the proportion of total social investment to GDP was always very high from 2005 to 2012, peaked at 46.52 percent in 2007. This ratio tended to decline sharply, reaching only 33.5 percent of GDP in 2012. According to statistics released in 2012, the total social development investment capital increased from VND343,135 (US$16 billion) in 2005 to VND989,300 (US$46 billion) in 2012 (2.88 times higher). Particularly, the FDI sector saw the most rapid leap of 4.5 times, followed by the private economic sector with 2.95 times and the State economic sector with 2.32 times. Data showed that the State budget was overspent.
Do Trong Khang said, to overcome the overspending, the new law must be successful in enhancing the efficiency of budget allocation, management and utilisation, intensify financial discipline and address irrational collection and expenditure decentralisation. The role of localities must be further promoted to reduce the burden on the central budget, which only serves long-term strategies and benefits, he added.
Sharing this standpoint, Mr Le Khanh Tuan, Deputy Director of Education and Training Department under the Ministry of Planning and Investment, said local authorities should be empowered to collect and expend budgets and the State only focus on major tasks. Empowerment must be attached with associated responsibilities.
Dr Le Quang Thuan added that the new law needs to amend regulations on the decentralisation of revenue sources. The central budget must add sources while local governments will gain autonomy in utilising and managing budgets. The central budget will play the leading role, perform strategic and vital tasks, regulate macroeconomic activities, and support localities in need.
Anh Phuong