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2.3. New changes in current system


The introduction of the State budget Law 2002 marks a period of accelerating transform from input-control to result-oriented budgeting process. This Law helps to improve the transparency, accountability, and quality of budgeting process. It also speeds up financial decentralization and eventually reforms public finance management in Vietnam. This section will provide more information about new changes in the current budgeting process in terms of budgeting procedure, and budget allocation norms.

2.3.1. Changes in budgeting procedure


There are significant changes in budgeting procedure regulated in the State Budget Law 1996 compared to the Law 1996. The National Assembly Congress is a unique agent having power to decide the central budget allocation, not National Assembly Standing Committee as stated in the State Budget Law 1996. Time duration for deciding drafted budget plan is also tightened, just 45 days, and saving the time for budget allocation to the end-beneficiaries. This budgeting process requires that all governmental agencies have to work and coordinate closely in order to meet requirements of budgeting process. Compared to the previous state budget law, the law 2002 has some important changes in budgeting process, which will be described as follows.

  • The State budget law 2002 has created a legal framework for the budget process and clearly defines the role of legislature agencies (National Assembly and People's Councils), executive agencies (Government and ministries, branches and People's Committees at all levels). The law provides legal procedures for monitoring the state budget of the legislature and creates a mechanism for the State Auditor agency to audit state budget allocations’ reports. In addition, the law stipulates the role, powers and interests of the governmental agencies at different levels.

  • The law stipulates revenue resources and state budget expenditure tasks of the budget s and sharing revenues between the central and local budgets.

  • The assigned revenues and expenditures of local budgets are stable from three to five years; it thus helps local government to have a plan to mobilize for and spend from local state budgets actively.

  • State budget revenues and expenditures at all government levels are unified, and they can be used similarly from the central to local budget levels. Under this new law, the budget has to include all revenues and expenditures in current fiscal year, and voluntary contributions. That means the law define which resources and objects of state budget revenues are, and it increases transparency as well as improves accountability at all budget levels and in all sectors.

  • The new law has some provisions to take into account of the impact of unforeseen circumstances and changes in policies for income and expense, for example bonuses when exceeding revenues collected, adjusted annual drafted state budget plan ... It will also allow adjusting the budget allocations and state budget expense responsibilities, if any unexpected changes in revenues and the expenditures of state budget occur.

  • The state budget Law 2002 allows local governments to mobilize its budget revenues via charges, fees, surcharges, and borrowed money. Local government debt does not exceed 30 percent of its total annual domestic investment in the province, except for Hanoi and Ho Chi Minh cities where their debt can be reach to 100 percent of their total annual domestic investment. This allows localities actively raising funds, voluntary contributions from individuals and organizations at the local levels, eventually to increase capital for development.

2.3.2. Changes in allocation norms


According to the decision 210/2006/QD-TTg, dated 12/9/2006, capital expenditure allocation of state budget from central to the provincial budget have been based on a set of allocation norms, which includes five groups of criteria: (i) Population includes provincial population size and its number of ethnic minority; (ii) Provincial development level consists of provincial poverty rate, domestic revenue, and portion transferred to the central budget; (iii) Area of province; (iv) Number of administrative units within provincial boundary include number of districts, mountainous district, remote, island, and disadvantage districts and cities (v) additional allocation criteria include special cities, central cities, provincial cities level I, and the central of dynamic economic regions.

The allocation norms are used the first time to allocate the central to lower budget levels in the 2007-2010 state budget stability. After four years of implementing the decision 210/2006/QD-TTg, there are achievements and limitations in allocating capital expenditures from the central to provincial budgets. The main achievements can be assessed in terms of implementation in the practice at all budget levels to meet requirements of capital expenditure for development. The state budget allocation, using the allocation norms, is equality, transparent, and highly supported by ministries, authorities, and local people. These allocation norms also help to eliminate rent-seeking mechanisms of capital expenditure allocation from state budgets. With the four years of budget stability, local governments (provinces and cities) have their longer investment plans. Using the allocation norms for capital expenditures ensure development objectives and priorities support to the mountainous, border, island, ethnic minority areas and other disadvantage areas to reduce the gap in economic development, incomes and living standards among regions in the country.

The decision 210/2006/QD-TTg has been applied for four years and reveals some limitations.


  • Capital expenditure from budget of ministries and sectors are not specified, and which sector, areas, and projects are funded by state budget, especially investment in projects of national economic groups, the state owned enterprises and social organizations have not been defined, so allocation of capital expenditure of those are not as transparent as that from the central to provincial budgets.

  • Many provinces have their internal revenue higher than their previous ones, but the increase in budget transfer to provinces is uneven and unchanged in some provinces. It thus leads to an additional capital for investment this province lower than that in other province, especially provinces with high revenue sources.

For the state budget stability period 2011-2015, allocation of capital expenditure from the central to provincial budgets are mainly similar to allocation process and norms in the previous state budget stability. It means that, the current state budget stability still uses same set of allocation norm, but some changes have been made. Following are some key changes in allocation norms of capital expenditure from the central to provincial budgets stipulated in the Decision 60/2010/QD-TTg compared to that stipulated in Decision 210/2006/QD-TTg.

The decision 60/2010/QD-TTg on principles of budget allocation has to follow the resolution of Politburo and the Central Executive Committee of Communist Party. The decision stipulates all ministries, industries, and areas, to which state budget will be delivered such that destinations of state budget will be allocated to the defined beneficiaries. The decision more clearly defines which economic groups, state owned corporations, and social and professional associations as well as specific programs/projects are received capital expenditure allocation from the state budgets.



In terms of allocation norms used for distribution of state budget from the central to provincial budget level, some minor changes are made.

  • The decision 60/2010/QD-TTg has made five groups of criteria more clear and specified. They include basic criteria groups as stipulated in the previous decision, including population, development level, area, district administrative units, and additional criteria. In which a criteria of rice-planted area is added to the additional criteria group in order to support more investment for the key rice-producing provinces to ensure food security. Among the additional criteria, urban types 1, 2, and 3 have been specified to match the current practice.

  • Regarding to the additional allocation from the central budget to local budget to NTPs, the number of NTPs has been reduced by program integration (from 60 to 29 programs) to make sure that the NTPs are focused and efficient. In addition, an increase in additional investment has been made to support provinces, which have their high portion of budget revenue sent back to the central budget level. This support is done by conclusions of the Politburo on building a specific mechanism for provinces, which have large contribution to the central budget, to increase their investment in public works, social security, and environmental protection.

  • In the development level criteria groups, the insights of provincial poverty rate have been changed. As stated in the decision 210/2006/QD-TTg, the provincial poverty rate used was statistics of MOLISA, but in the decision 60/2010/QD-TTg, the GSO provincial poverty rates, which are calculated from Vietnam household Living Standard Living 2008, have been used in stead.
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