Caixin Weekly: When Will Social Security Fiscal Subsidies Peak? (AI Translation)

财新周刊｜社保财政补贴何时见顶？

[para. 1] In early 2024, an official from a human resources department in an eastern province was notified that the provincial share of urban and rural residents' pension and medical insurance would be reduced from 70% to 40%. This is part of a strategy aimed at balancing fiscal responsibilities across regions. A district in the province needs approximately 70 million yuan monthly for residents' pensions, amounting to over 800 million yuan annually. The new policy increases pressure on local finances, requiring an additional 300 million yuan annually, highlighting that despite fiscal constraints, ensuring residents' well-being remains a top priority. [para. 1][para. 2][para. 4] A western province considered raising pension contribution levels but faced financial difficulty in increasing corresponding subsidies. Local governments across China are tightening their belts, and fiscal operations of social security are under scrutiny. The Ministry of Finance emphasizes implementing proactive fiscal policies with a focus on ensuring people's livelihoods, promoting consumption, and advancing development by 2025. [para. 5] Social insurance schemes are looking to raise benefits. National fiscal subsidies for social security rose from 5.82% of total expenditure in 2015 to 8.84% in 2023. Twelve provinces prioritize social welfare spending, accounting for 70-80% of their budgets, with Heilongjiang spending 87.1%. Jiangsu plans an 8% increase in basic pensions and a subsidy hike for medical insurance by 2025. [para. 5][para. 6][para. 7] Fiscal contributions have stayed above 20% over the past decade yet slightly decreased for certain insurances. Residents' medical insurance and pension funds' fiscal income proportion dropped in 2023. [para. 8] A report highlighted increased reliance on government finance for social security funds and the rising pressure on providing financial support amidst local fiscal challenges. [para. 9][para. 11] Some social insurance systems, including urban-rural resident insurance, have struggled due to fiscal adjustments, experiencing enrollment declines and sluggish benefit growth. Individual contribution responsibility and reducing fiscal reliance is proposed for future reforms. [para. 12] Social insurance revenues include premium, fiscal subsidy, interest, and investment income. Fiscal subsidy income rose by 137% from 2015, remaining consistently around 21-23% of total fund revenue. Major contributions go to pension and medical insurance. [para. 13][para. 14] Fiscal subsidies vary among insurance types and provinces. Residents' medical insurance receives high fiscal support, while employee medical insurance remains below 1%. [para. 15][para. 16] Social security subsidies differ regionally, e.g., Beijing and Guangdong see less than 1% for employee pension funds, but areas like Jilin exceed 40%. [para. 17][para. 18] Changes in fiscal responsibilities indicate a move toward individual contributions for balanced insurance systems. [para. 19][para. 21] National coordination on employee pension funds helps balance provincial deficits and surpluses, with future expansion likely. Experts stress the importance of fiscal support and incentive mechanisms for local governance. [para. 19][para. 21] Central adjustment funds since 2018 pooled resources, alleviating local fiscal burdens, and a new nationwide pooling plan continues the trend. Government subsidies rose from under 30% to around 35% by 2023. [para. 23][para. 25] National pension coordination began in 2022, establishing fiscal income-expenditure sharing mechanisms between central and local authorities. [para. 26] Reduced national coordination deficits could affect local surpluses, with central aid filling subsequent gaps. [para. 30] Provinces bear varying fiscal burdens, demanding reforms to balance fiscal responsibilities, ensure pension benefit sustainability, and manage system inconsistencies across regions. [para. 32][para. 34][para. 36] Provincial fiscal responsibilities in employee pensions fluctuate, with richer regions contributing more, but future improvements are needed to address financial pressure. [para. 39] Declining fiscal subsidy proportions signal enhanced personal involvement in residents' pension schemes, demanding further study and reform. Facing increasing fiscal pressures, policymakers ponder restructuring incentives and responsibilities within the nation's social insurance program for long-term viability. [para. 40][para. 42] Experts suggest reforms to alleviate fiscal burdens without undermining equity. Urban-rural resident pension schemes offer insights, with differing subsidy and contribution levels mirroring national fiscal challenges.