A Study Of Reform On "Land Finance" Legal Regulation

Since the tax distribution system reform in1994, the central government’s fiscal revenuehas taken a much larger share than that of the local governments in the total fiscal revenue.However, the drop of the local governments’ financial revenue does not mean the reduction ofits administrative power. On the contrary, with the decentralization of administrative powers,the local governments have more complicated work to do. Under this circumstance, the localgovernments have to find ways to raise their fiscal revenue and they set their eyes on “land”.Most of the fiscal revenue of the local governments comes from land transfer fees and landtaxes. In short, the local governments’ financial acts center mainly upon land. We call thiskind of acts of the local governments the “land finance acts”.The main supporting legal systems are the system of land transfer, the system of landtaxes and the system of land fees. With these three systems, the local governments haveobtained a huge amount of fiscal revenue. These three systems are referred to in this study asthe basic system of “land finance” legal regulation. In Chapter1, a brief overview is made ofthe history and the status quo of the basic system of “land finance” legal regulation. First, itmakes a brief survey of the development of the legal system of land transfer and, discussesthe concept, nature and characteristics of land transfer fees. Secondly, it makes anintroduction to the history and status quo of the legal system of land taxes in China and givesa detailed analysis of the present land tax system from three aspects: land acquisition, landretention and circulation. Finally, it sorts out and summarizes China’s land fee systems.The local governments have been widely criticized for their land finance acts. From alegal perspective, the reason lies in the wrong definition of the function of the basic legalregulation system of land finance. Focusing on the analysis of the function of this system,Chapter2justifies the reform on land finance legal regulation. Firstly, it makes an all-rounddiscussion of the function of the basic legal regulation system of land finance. Secondly, itanalyzes the functional orientation and effects of the basic legal regulation system of “landfinance”. It argues that the overall functional orientation of the system has been wronglydefined in that too much concern has been given to its function for increasing the fiscalrevenue, while other functions are neglected. This has resulted in both positive and negative effects. Thirdly, it analyzes the reasons for the wrong orientation of the function of the basiclegal regulation system of “land finance”. There are three reasons why the local governmentsconcern more about the basic system’s financial function than other functions. The firstreason is the local governments’ financial difficulty caused by the tax distribution system,which has forced the local governments to raise funds. The second reason is the pressure fromthe performance evaluation system which is centered upon GDP and fiscal revenue. The thirdreason is that China’s current land system makes it possible for the local governments to raisefunds quickly. Up to Chapter2, the framework of “land finance” legal regulation is set up.The local governments use land to raise their fiscal revenue mainly through three legalsystems, that is, land transfer, land tax and land fees, which can be referred to as the basiclegal regulation system of “land finance”. And obviously, the legal systems of financial powerdivision and administrative power division, and the land system and levy system are closelyrelated to “land finance” acts. These systems can be referred to as the relevant legal regulationsystems of “land finance”. Both these two kinds of systems will be involved in the followingdiscussions of the reform on “land finance” legal regulation.From Chapter3, this paper starts to explore how to reform the “land finance” legalregulation system. The third chapter sets the targets for the reform, that is, economic securityand distribution justice. The first section is devoted to the first goal, economic security. First,economic security is defined. That is the extent to which a country’s economic sovereigntyand basic economic order and the interest and acts of economic subjects in economicactivities are protected as well as the possibilities of being harmed. Secondly, the economicsecurity state to be achieved by the reform is discussed, that is, the fiscal security, financialsecurity and food security. Section2focuses on the second target of reform, i.e. distributingjustice. First, distribution justice is defined after a survey of various views about it. Secondly,the “ought to be” state of the reform is discussed from three perspectives: fair distribution ofland value-added income, procedural justice in land transfer fees distribution, fair distributionof land resources and land income between generations, distributing justice in land taxes.“Land finance” legal regulation reform is a large-scale project involving not only theformulation, revision and perfection of specific financial legal system, but the basic principlesof Finance Act and fundamental ideas of constitutional government. Chapter4is dedicated tothe discussion of these ideas of constitutional government. Firstly, the reform on “land finance” legal regulation must adhere to the idea of guaranteeing human rights. To guaranteehuman rights is both the starting point and the final goal of the reform on “land finance” legalregulation. To make profits from land transfer fees, the local governments often expropriatesfarmers’ cultivated land, which makes farmers lose their land and jobs and violates farmers’rights of existence and development. In cities, the soaring price of houses resulted from the“land finance” mode makes it very hard for townspeople to have their own houses.Meanwhile, as the local governments usually conduct violent demolition and resettlement inorder to obtain land, the urban residents’ right to shelter has not been guaranteed effectively.Therefore, to guarantee human rights should be the unshakable principle of “land finance”legal regulation reform and to guarantee citizens’ human rights more effectively and let themlive with respects should be its final goal. Secondly, the reform should adhere to theconstitutional idea of tax state. After probing into the theoretical origins of tax state, the thesisargues that the constitutional meaning of tax state is essentially the assertion of tax payers’rights and the limitation of government’s power, which are represented by two basicprinciples, that is, the principle of legality in taxation and the principle of tax equality. Thesetwo principles should be followed in the reform of “land finance” legal regulation. To be brief,the systems of land transfer, land tax, and land costs need to be further adjusted and improvedtowards a real tax state. Thirdly, as mentioned above, the formation of “land finance” isclosely related to the division of financial power between the central and local governments.To some extent, it is the unreasonable division of financial power that causes the localgovernments’ shortage of financial funds, which has forced them to look for new financialresources. Therefore, how to divide the financial power is the key to the reform. In this part,with an analysis of the general theory of fiscal decentralization, the author points out that theguarantee of local financial autonomy should be the key point of fiscal decentralization in ourcountry. An in-depth discussion of the extension of local financial autonomy is also given.In the fifth chapter, the author puts forward in detail his own design of the reform. In thefirst section, an analysis is given to the reform of land transfer fees legal system. It argues thatthe overall direction of the reform is to change leasing into taxation. Considering the publicownership of land in our country, the land transfer fees reform should be carried out in twosteps: the long term objective is to replace land transfer fees by property tax, which is incompliance with the idea of tax state; the short term objective is to let part of the land transfer fees be levied together with property tax. The reform of land tax system mainly involves thereforming methods and the design of specific systems. In order to change the present situationin which the local governments make money by land, relevant supporting systems are needed.The second section of this chapter then focuses on the reform of relevant systems of “landfinance” legal regulation. First of all, it argues, the laws of financial revenues andexpenditures should be perfected so as to allocate reasonably the fiscal power between thecentral government and local governments. The main purpose of giving local governmentscertain fiscal power is to gradually eliminate the stimulus and motivation for raising moneyby land. The way to perfect current law of financial revenues and expenditures is to make aspecific “Revenue and Expenditure Classification Act”, which consists mainly of three parts:the financial level classification system, financial expenditure classification system andfinancial revenue classification system. Furthermore, the local governments may still have nofinancial resources even though they have been given some fiscal power. In order to ensurethe local governments to have enough money to deal with the increasingly complicated issues,the financial transfer payment system should be reformed and perfected. The “FinancialTransfer Payment Law of People’s Republic of China” should be launched as soon as possibleto simplify and regulate the financial transfer payment, to establish a scientific calculationstandard, and to set up detailed legal procedures for financial transfer payment. However, ithas to be noticed that even with fiscal power and enough money the local governments willstill be motivated and take action to make profits, if the land system and land expropriationsystem are not changed. Therefore, the current land system and land expropriation systemshould be reformed. First, land for public welfare should be distinguished from land for otherpurposes. Land for public welfare can only be expropriated by the state. If the land is forcommercial purpose, the subjects of rural collective land ownership have the same right as thestate to adopt the market-based disposal of their land. Therefore, the status of farmers as thelegal subjects to transfer their contractual right of the rural land to non-agricultural use shouldbe clearly asserted by law, that is, to establish farmers’ subjective status in the transaction ofthe collective land use right. The reformed law should acknowledge farmers’ complete rightto transfer their land contracted both for agricultural use and nonagricultural use. Thus,farmers’ interests can be firmly guaranteed.In short,the local government’s “land finance” behavior has seriously affected China’s economic development and even social stability.There are many problems of “land finance”legal regulation, reform of the necessity and importance goes without saying. The reform on“land finance” legal regulation should set clear objectives, uphold clear constitutionalconcepts and design comprehensive reform measures.The only way to effectively contain thecurrent “land finance” behavior,to make people truly live a life of dignity.