(Yicai) Dec. 16 -- The fiscal self-sufficiency rate of county-level administrations in China was just 38 percent on average last year, with major disparities across regions, according to a new report by the School of Finance and Taxation of Southwestern University of Finance and Economics.

The fiscal self-sufficiency rate -- defined as the share of general public budget revenue relative to fiscal spending -- is a key gauge of local governments’ financial health.

The fiscal conditions at the county level vary greatly from region to region, Qin Shikun, one of the main editors of the Report on the Fiscal Conditions of Provinces, Cities, and Counties, told Yicai.

“A county in western Qinghai province has the lowest fiscal self-sufficiency rate of only about 1 percent, while a district in the city of Nanjing in eastern Jiangsu province has the highest fiscal self-sufficiency rate of about 252 percent,” Qin said.

The report, which looked at the fiscal revenue and expenditure of 2,774 county-level regions in the Chinese mainland, found that differences in comprehensive financial capacity, population size, and economic growth have produced the most pronounced gaps in fiscal resource support.

For example, the general public budget revenue of the city of Fuding in Fujian province jumped 46 percent in the first three quarters of the year, driven by a growing tax take from the local new energy industry’s supply chain. Meanwhile, that of Nan’an, also in Fujian, fell 15 percent.

As economic activity and population continue to concentrate in more developed regions, fiscal disparities across districts and counties are likely to widen and become more pronounced, Qin said.

Counties are grappling with fiscal stress as a result of lower revenues and rising expenditure demand, Li Jianjun, dean of the School of Finance and Taxation at SWUFE and another main editor of the report, told Yicai.

Against the backdrop of economic adjustment, weakening profitability among market entities, tax cuts to stimulate growth, and a deeply changing property market have combined to shrink local tax and land transfer revenues, Li pointed out.

At the same time, growing demand for social security, quality education, healthcare, employment, environmental improvements, and public infrastructure continues to drive up local government expenditure, exacerbating fiscal strains, Li explained.

Bolstering local fiscal autonomy is key to resolving these pressures, Li said, calling for a faster pace of consumption tax reform. He proposes shifting the consumption tax on autos and refined oil from the production stage to the retail or wholesale stage and allocating those revenues directly to localities while giving them the authority to levy consumption tax on certain goods or services.

Li also suggested optimizing the revenue-sharing split of shared taxes and hiking the local government share of business and income tax revenues.

China should establish a unified local surcharge tax, set its benchmark rate to keep the tax burden stable and grant local authorities the right to increase the rate, Li said. Meanwhile, localities should cut unreasonable expenditure and put an end to ineffective and inefficient spending, Li added.

On the premise of clearly defining the boundaries between the government and the market, the central government’s powers and expenditure responsibilities should be appropriately increased, while those of local governments should be appropriately reduced to ease the pressure on local fiscal expenditure, Li pointed out.

Editors: Tang Shihua, Futura Costaglione