The nature of the state budget also was significantly altered by the reform program. Before 1979 the state budget was the financial component of the national economic plan. It was made up of the budgets of both the central government and the local governments and included the revenues and expenditures of all stÍÍÍÍate-owned enterprises. All profits from state enterprises were remitted to the state budget, and investment funds were allocated from the state budget. Under the reform, there was increased separation of enterprises from direct state control. Enterprises now paid proportional taxes on their incomes rather than remitting their entire profits to the state. Investment funds were, in principle, no longer to be allocated directly to state enterprises from the state budget but were to be obtained from the banking system in the form of interest-bearing loans.

In 1985 total state revenues of -Y186.6 billion included -Y51.4 billion in income taxes from state-owned enterprises and only -Y4.4 billion in enterprise incomes. The largest category of revenues was industrial and commercial taxes, which amounted to -Y110.1 billion. Agricultural taxes were -Y4.2 billion, continuing the previous policy of levying only negligible taxes on the farm sector. Revenues also included borrowing equal to -Y9 billion, a practice followed annually since 1978. As of 1983 roughly 30 percent of total revenues were collected by the central government and 70 percent by local governments, while each accounted for about 50 percent of expenditures.

In 1985 the largest category of budget expenditure was appropriations for capital construction, which received 31.3 percent of the total allotment. Culture, education, science, and public health constituted the next largest category, with 17 percent of expenditures. National defense, which averaged 19 percent of budgetary expenditures in the 1960s and 1970s, received only 10.3 percent of the total in 1985. Administrative expenses were 7.7 percent of the budget and new technology in enterprises 5.5 percent. In 1984 the state paid out -Y37 billion in price subsidies, an amount equal to 24 percent of total expenditures in that year. The bulk of the subsidies---Y32 billion--was for consumer goods.

An important function of the state budget was to transfer resources from prosperous regions to poor regions. The budgets that were finally approved by the Ministry of Finance for the provinces, autonomous regions, and special municipalities allowed surplus funds from affluent areas to be transferred to cover planned expenditures in the deficit areas, while bringing the budget for the entire country into balance. The resulting pattern of revenue sharing between provincial-level administrations and the central government was one in which the advanced industrialized regions paid a much higher rate of net taxation than most areas, and the least-developed regions were heavily subsidized. For example, in 1985 Shanghai remitted -Y8.4 billion in profits and taxes, equal to 4.5 percent of national budget revenues, although it had only 1.1 percent of the national population.

125Data a as of July 1987