5. We will promote fiscal and taxation reforms.

We will deepen the reform of the fiscal management system. We will improve and standardize the system of transfer payments from the central to local governments, raise the scale and proportion of general transfer payments, and increase spending on public services. The central government has allocated 846.702 billion yuan in fiscal transfer payments to local governments, an increase of 137.417 billion yuan or 19.4 percent. We will improve the method of calculating standard revenue and expenditure items and strengthen support for no-development zones and restricted development zones. We will also encourage these regions to strengthen ecological and environmental protection, and promote development in development priority zones. Fiscal transfer payments to cities that once depended on resources that are now exhausted will be increased to help them gradually solve longstanding social problems. The procedure for examining and approving new transfer payments must be strictly followed to make the distribution scientific. We will continue reviewing current special transfer payments, combine items that have similar purposes and eliminate or reduce items whose term has expired, items of a one-time nature and items that do not need to be retained to meet the needs of macroeconomic regulation. The procedure for introducing policies related to special transfer payments will be standardized to keep the overall load on local budgets within an acceptable range. A total of 44 billion yuan, an increase of ten billion yuan, has been allocated for rewards and subsidies to adjust and improve the incentive and restraint mechanisms for alleviating fiscal problems of county and township governments, and to create a mechanism for guaranteeing minimum fiscal expenditures for counties and townships. We will improve the fiscal systems at and below the provincial level, accelerate the reform to put county public finance directly under the management of provincial governments and township public finance under the management of county governments, and gradually establish a mechanism to direct more revenue toward governments at lower levels in order to better equalize basic public services.

We will promote reform of the taxation system. We will unify the income tax systems for domestic and overseas-funded enterprises, fully implement the new Law on Corporate Income Tax and regulations on its implementation, and ensure that the reform of the corporate income tax system proceeds smoothly. We will continue the trial VAT reform in the old northeast China industrial base and in 26 old industrial cities in the central region. A nationwide implementation plan will be worked out. We will reform the resource tax system. We will implement the new regulations for the tax on farmland used for nonagricultural purposes. We will study measures for combining the urban construction and maintenance tax and education surcharge systems for both domestic and overseas-funded enterprises. We will carry out reform of the individual income tax, raise its earnings threshold, and reduce the tax load on low-income workers.

We will improve the budgetary management system. We will improve the way surplus revenue in the central budget is used. Beginning in 2008, we will in principle consolidate all surplus revenue in the central budget into the central budget stability and regulation fund and incorporate it into the following year's budget rather than finding new ways to spend it. The exceptions to this principle are as follows: increases in expenditures that are required by law, regulations or the fiscal system; necessary expenditures to reduce the deficit or pay long overdue debts; and special one-time expenditures. This will make it easier to ensure that key expenditures are met, that budget management is standardized, and that budget constraints are strengthened. We will carry out comprehensive budgeting, study ways to improve the system of standards for expenditures, improve examination and approval of items, institute rolling management of budgetary expenditure items and increase the number of departments required to report their budgets to the NPC. We will actively carry out trial evaluations of budgetary performance and explore ways to set up a system for publicizing the results of performance evaluations in order to improve the level and quality of public goods and services. Central, provincial, municipal and prefectural governments will extend the reform setting up a centralized treasury payment system to all subsidiary bodies within their jurisdictions that prepare budgets. The reform will gradually expand to include government-managed funds and extrabudgetary funds. In order to improve the system for managing the outstanding balance of government bonds, we will energetically promote the reform to make government bonds subject to market forces. We will expand the scope of trials of a budget system for managing state capital. The system for managing state assets held by administrative bodies and government-affiliated institutions will be further improved. Studies will be carried out to establish a standard budgetary system for the social security fund.

We will continue to deepen overall rural reform. The central government has allocated 15 billion yuan to strongly support debt reduction for rural nine-year compulsory education as a starting point for reducing all rural debt. We will look for a way to set up a new mechanism for funding rural public service programs. We will carry out trials of a comprehensive reform to reduce the economic burden on farmers from water fees. Also, the burden on farmers due to regional or industrial differences will be gradually reduced.

We will speed up reform of the income distribution system. We will work hard to get public finance to play a significant role in adjusting the pattern of income distribution. We will gradually increase the proportion of national income going to individuals and raise labor's share of the primary distribution of income. We will adopt fiscal and taxation policies to increase incomes of rural residents, urban recipients of cost of living allowances and other low-income people. We will support the implementation of a minimum wage standard for enterprises, gradually raise it, and set up a mechanism to increase the pay of enterprise employees regularly and to guarantee that they get paid. We will ensure that all enterprise employees have basic medical, basic old-age, unemployment, workers' compensation and other insurance. We will support the efforts to strengthen collection of social security contributions and increase the percentage of people contributing. We will increase transfer payments to people in financial difficulties to ease their burden of paying for education, medical services, old-age insurance, housing and fees. We will give the individual income tax a bigger role in adjusting income distribution, improve tax collection for high-income workers, and reduce the tax load on low-income workers. Oversight of income distribution will be tightened for SOEs and state-owned financial institutions, especially in monopoly industries. The pattern of income distribution to civil servants will be further standardized. We will improve oversight and inspection to uncover and strictly deal with any violation of regulations concerning the granting of allowances or subsidies.

We will support the deepening of reform of the banking and related systems. State-owned financial institutions must properly carry out their duty to provide capital, and we will actively yet prudently carry out the reform to convert the Agricultural Bank of China and other key state-owned financial institutions into stockholding companies and transform the China Development Bank into a commercial institution. In addition, we will strongly support reform of the investment system.