Public emergency management is an important part of the modernization of the national governance system and governance capacity. To deal with public emergencies, we should grasp the particular situation, set up a framework of professional prevention and control, and respond. From the financial point of view, it is necessary to construct a corresponding financial support and guarantee system. To respond to and handle public emergencies requires government intervention, professional technology and comprehensive resources. Government intervention is the main way to block the impact of the crisis and an important function of governmental public services. In managing major public emergencies, it is necessary to reinforce the dominant position and authority of government departments to construct a unified crisis management mechanism. Definitely, professionalism and sufficient resources should also be stressed. For example, infectious disease prevention and control requires strict professionalism, which needs timely, adequate and effective professional evaluation and authoritative identification. In addition, behind government intervention is the mobilization of various resources, among which, the most urgent is the rapid investment of personnel and relief materials, and the most important is the allocation and use of financial resources. Large-scale investment of government financial funds is needed.

Based on international experience, the three pillar tools in responding to public emergencies are a reserve fee, transfer payment and tax reduction.

The reserve fee is the fundamental policy instrument for dealing with public emergencies. The relief fund for Japan’s public emergency is deposited by governments at all levels at 0.5% of the average of general tax revenue accounts in the past three years. The first financial investment in the magnitude-9 earthquake that struck Japan in March 2011 came from the reserve fee. The disaster relief fund mechanism established by India is also a type of reserve fee system, which is at the central and state government levels, contributing 75% and 25% respectively. According to the Budget Law of China, governments at all levels shall set up reserve fees by allocating 1–3% of the budget expenditure of the government for natural disaster relief expenses and other unforeseen special expenses in the current year. This proportion for the central government is 1.1–3%. The reserve fee of the central Chinese government in 2008 was RMB 35 billion, accounting for 2.65% of the total budget, and the amount allocated for the Wenchuan earthquake totaled RMB 34.994 billion.

Transfer payments are another core financial pillar of a major public emergency response. Public emergencies are characterized by unpredictability and urgency, and a transfer payment is the key to filling a funding gap. For example, when a severe flood unseen in the past century struck Saxony, Germany, the federal government set up a flood response fund with euro 7 billion for disaster relief, which was a rare and major transfer payment by the German federal government. After the 2011 earthquake, Japan invested 32 trillion yen in a 10-year reconstruction and rehabilitation program, which mostly came from transfer payments by the central government.

The main financial policies for post-disaster reconstruction after public emergencies also include tax reduction. For example, after the 2011 earthquake, the Japanese government implemented a special tax policy targeting the disaster-afflicted areas. New enterprises were exempted from tax for five years, and new investment in enterprises’ machinery, equipment, buildings and ancillary facilities was also exempted from tax. The Small Business Administration of the United States provided concessional loans to small and medium-sized enterprises to compensate the loss of real estate, equipment and inventory that were not covered by insurance during the disaster, with a maximum loan of $2 million for a maximum period of 30 years.

When facing major public emergencies, in addition to the core policies of the reserve fee, transfer payment and tax reduction, there are a variety of other policies that can be applied. Public governance, community services, and monetary and financial policies are also necessary. In the long run, China needs to establish and improve its information disclosure system for crisis response and financial expenditure, particularly focusing on the disclosure of policy information on crisis management, personnel relief, professional input, and post-disaster reconstruction and recovery.

Zheng Liansheng is from the Institute of Finance at the Chinese Academy of Social Sciences.