An Analysis of Quasi-Decentralized Budgeting in Vietnam

Abstract

This article provides an analysis of the quasi-decentralized budgeting process used in Vietnam as defined in the 2002 Law on the State Budget. Although the Government is controlled by a single political party and relies on a single state budget, the Law grants provinces considerable decentralized power over allocation of tax revenues and expenditure responsibilities within their own jurisdictions. The article documents the effects of various aspects of the Law on the revenues and spending of sub-national governments in the country and illustrates how various provinces have responded to the decentralized powers granted under the Law.

Keywords:

• fiscal decentralization
• Vietnam
• public budgeting
• budget law

Notes

This article is an extension of a chapter to be published in Menifield (2011). A previous version of this article was presented at the annual meeting of the Association for Budgeting and Financial Management in 2009.

¹Nearly 90 percent of the 2002–2007 National Assembly deputies were party members.

²There were 58 provinces before August 1, 2008, when Ha Tay Province was merged into the capital of Ha Noi.

FIGURE 1 Administrative Government Structure in Vietnam.

³Removal of People's Councils has been piloted in some districts and urban communes since February 2009.

⁴Even during this period, there were in fact attempts by the central government to recentralize power delegated to local government in the 1990s (Vasavakul, 2002), which is documented by the case of Ho Chi Minh City during the reform era (Gainsborough, 2003).

⁵More details on the budget process under the 1997 law are provided in Rao (2000).

⁶The full Vietnamese text of the Law as well as of other sub-laws detailing the implementation of the law can be found at http://www.tcvg.hochiminhcity.gov.vn/tieu_diem/luat_ngan_sach_nha_nuoc. The English version to some of the laws can be accessed at http://moj.gov.vn/vbpq/en/pages/vbpq.aspx. There is unfortunately no central place to access other internal documents used in this paper.

⁷We will refer to these as the first and second stability period, respectively, for short.

⁸There have been several recent studies of fiscal decentralization or sub-national government spending in Viet Nam (see, for example, Bjornestad (2009), Painter (2008), or Vo (2009). However, none since the 2005 paper by Martinez- Vazquez and Gomez has there been analysis focusing on the implications of the 2002 Law.

⁹Although revenue sources may include fees and user charges, we use the term “tax revenue” for short.

¹⁰The current list of such corporations includes eight electric companies, six official banks, Vietnam Airlines, Vietnam Railways, Vietnam Post and Telecom, and Vietnam Insurance Corporation (Martinez-Vazquez 2005).

¹¹The tax department of the MOF maintains offices throughout the country (even at the commune level) which serves as the tax collecting unit for all tax revenues (including those dedicated to sub-national governments).

¹²The total expenditures are estimated using transfer spending norms discussed below.

¹³Note that both A and B are net of transfers to sub-national governments, and other spending financed by the central government's transfers, municipal bond issuance, voluntary contributions, foreign borrowing, and carry-forwards.

¹⁴This “bonus” is not computed separately for each shared tax.

¹⁵Ordinance 38/2001/PL-UBTVQH10, for which Decree 57 provides implementation guides, distinguishes between user charges and government fees. User charges are a payment for a service (e.g., hospitals, or libraries) rendered by an organization or individual whereas government fees (e.g., fees for property registration, or passport issuance) are a payment made to a government agency or an authorized organization for public governance purposes. Only user charges are intended to cover costs incurred in delivering the service.

¹⁶An example of partial authority is admission to historical monuments. Provinces can only determine admission to monuments that are under their management, not to national monuments or world heritage sites.

¹⁷Data are retrieved from the Vietnamese Ministry of Finance website at http://www.mof.gov.vn.

¹⁸For an example of fees and charges imposed on two villages of Ha Tay Province, see World Bank (2004, p. 43).

¹⁹A few provinces with sufficient own-source and shared revenues do not receive balancing transfers. According to data provided by Viet Nam's Ministry of Finance, while all provinces received some balancing transfers in 2002, 15 and 11 of 64 provinces did not get the transfers in the first (2004–06) and second (2007–09) stability periods respectively. However, the eligibility of these provinces for targeted transfers stayed unchanged.

²⁰Decisions 139/2003/QD-Ttg and 151/2006/QD-Ttg provide for transfer norms for the first and second stability periods, respectively.

²¹We use “transfer norms” to distinguish them from allocative norms between the provincial and sub-provincial governments, which are discussed below. The use of “norms” is a carry-over from pre-doi moi days when the economy relied heavily on central planning.

²²See, as an example, Report No. 09/BC-UBND dated February 2, 2006 People's Committee of Binh Dinh Province.

²³See Decision 210 for detailed formulas.

²⁴Apparently, cities have been known to borrow and use a unique debt financing mechanism. Each public employee in the city is “expected” to buy a locally-issued bond where the price of the bond is deducted from the employees' pay. Each bond is in small denominations to make it affordable; but the bond also carries a long duration to maturity.

²⁵Ho Chi Minh City and Ha Noi can also adopt models of Build-Operate-Transfer (B-O-T), Build-Transfer-Operate (B-T-O), or Build-Transfer (B-T) to mobilize capital for revenue projects.

²⁶In spite of this legal provision, recent evaluations by the International Budget Project of the Center on Budget and Policy Priorities (CBPP) have given Viet Nam extremely low scores on its Open Budget Index – only 2 percent for 2006 and 9 percent in 2008 when the enacted budget and in-years reviews of the budget were made public. See http://openbudgetindex.org/files/CountrySummaryViet Nam.pdf for the 2006 report and http://openbudgetindex.org/files/cs_Viet Nam.pdf for the 2008 report.