Tuesday, November 21 2017

VietNamNews

Redistributing revenues a must for balanced growth

Update: January, 06/2017 - 09:00

Using budget revenues from big cities to support disadvantaged localities is a policy imperative for Việt Nam, former National Assembly Deputy Bùi Thị An tells the Kinh tế & Đô thị (Economy and Urban) Newspaper.

The Finance Ministry has proposed that the Government submits to the National Assembly a proposal that will drastically cut the percentage of annual budget revenues retained by big cities like Hà Nội, HCM City and Đà Nẵng. Hà Nội, for instance, will only be allowed to keep 28 per cent of its annual budget revenues, down 14 per cent from the current rate. What do you think?

I think that we must follow it if the proposal is approved. As the Finance Ministry says, there is a need to cut portions of budget revenues of developed localities that have a good source of income in order to gather more resources to support disadvantaged localities. This would help balance the central budget with that of localities. It is reasonable that cities like Hà Nội, HCM City and Đà Nẵng shoulder problems with other localities, helping them overcome many difficulties.

But will this not affect Hà Nội’s expenditures, particularly its spending on infrastructure development and services?

Yes, it will certainly affect the spending of the bigger cities, particularly on public investment projects. A capital city like Hà Nội, in particular, which needs to investment in developing infrastructure, education and healthcare, will face more difficulties.

But, as I said earlier, we must follow this policy. Sharing is necessary. So Hà Nội must find solutions to ensure that it can share difficulties with other localities while meeting its own development demands.

What are some of the solutions that Hà Nội can apply?

First, the expenditure must be narrowed down to what is indispensable. For this, the city should review its spending agenda to reduce regular expenditure and balance capital expenditure. Relevant State agencies should also supervise the public spending process to prevent wastefulness.

Another important measure is to call for private investment to attract funding from all economic sectors. We have to create favourable conditions and mechanisms to encourage private sector participation in social investment. Hà Nội has effectively applied this measure for several years now.

For example, the city has applied the public-private-partnership (PPP) model in infrastructure and urban transport construction. It has also led other localities in equitising State-owned enterprises. The participation of private investors has contributed to creating a dynamic, developing Hà Nội. In the context of budget reduction, this model needs to be promoted further.

However, it should be noted such socialisation should have appropriate targets, and its application should be supervised by the State and citizens. If socialisation of public investment is ineffective, it will end up benefiting just investors, not residents. So when we source investment from the private sector, we have to ensure that all sides benefit, the State, the businesses and local people.

Apart from calling for diversified sources of investment, localities like Hà Nội and HCM City have issued bonds to attract more investment. This is happening on a small scale and related regulations are not complete. What should be done to develop the capital market in such localities?

I think localities need to review their investment mobilising mechanisms. They should report obstacles to the Government and propose solutions. If their proposals are reasonable, the Government will certainly support them.

The National Assembly Standing Committee has discussed a draft Government decree on special financial and budget management mechanisms for Hà Nội. What do you think about this move?

Hà Nội is not only for Hanoians. It is home to central agencies and is the national hub of politics, economy, science and education. Within this special context, Hà Nội does need a special financial management mechanism for its development. According to the Government’s assessment, the implementation of special financial and budget mechanisms and policies for Hà Nội has recorded important results over the last decade. The special mechanisms and policies include priority in allocating Official Development Assistance and financial aid, in assigning budget spending rate and capital mobilisation rate for capital expenditures.

However, there have been several shortcomings in implementing these special financial management mechanisms and policies. A draft decree seeking to address these shortcomings should regulate that Hà Nội’s debt not exceed 60 per cent of the budget revenue that it is allowed to keep.

Many experts have proposed big cities enjoy greater autonomy in their budget collection and spending. What do you think?

This is a long story. This is being studied by experts and State management agencies. Hà Nội itself has the Capital Law, and it is good to develop the city based on this law. — VNS

 

 

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