In a significant shift, China's new five-year plan emphasizes the need for tax reform as local governments struggle with fiscal constraints amid rising public service demands. The government aims to enhance tax revenue, contrasting previous plans that focused more on reducing taxes and fees. This reform is particularly necessary as local government revenue continues to lag behind that of other major economies, putting pressure on their financial stability and ability to meet public needs.

The draft of the 15th five-year plan indicates a major alteration in fiscal policy, moving towards a balanced macro tax burden while pledging to strengthen central government authority. The increased central government spending is aimed at easing the financial responsibilities allocated to local government authorities. This strategic shift seeks to align local fiscal capacities with the obligations expected of them as central reforms take shape.

Premier Li Qiang’s unveiling of this plan at the National People’s Congress is indicative of a broader government strategy to stabilize local finances and streamline governance. By redistributing fiscal responsibilities and boosting tax collection mechanisms, Beijing hopes to create a more sustainable economic framework. This plan may also signal increased intervention from the central government in local matters, highlighting the ongoing challenges of managing the economy in light of increasing public duty costs alongside dwindling revenues.