Good fiscal revenue does not equal a good economy

By Ye Qing
0 Comment(s)Print E-mail, July 5, 2012
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Ye Qing, Vice Director of Hubei Provincial Bureau of Statistics and deputy to the 11th National People's Congress. [File Photo]

China's Ministry of Finance released a final report on the implementation of the 2011 budget at the a session of the Standing Committee of the National People's Congress (NPC), China's top legislature on June 27. Let's have a look at these statistics:

The central government's fiscal revenues for 2011 reached 5.13 trillion yuan (US$814.7 billion), 11.9 percent above the budgeted level and 20.8 percent higher than 2010.

It's wonderful for fiscal revenues if we are looking at the figures on fulfillment and budget growth. But China's economy was not that robust in 2011. Many companies closed. And the pressure of employment, especially for college graduates, is growing. The major problem at present is that the previous driving force of China's economic growth in southeast coastal areas has suffered from pressures stemming from lagging overseas and domestic markets. Moreover, limited domestic consumer demand has been nibbled away by rising companies in the central region. Only when China's budget revenue growth matches with economic growth can companies feel comfortable with their taxes. Western economics tells us the role of fiscal adjustment: cut the tax rate and increase investment during economic slowdowns and decrease investment when the economy has recovered. It's not a bad thing for fiscal revenue to grow slowly, because a slow growth of fiscal revenue means a possible growth of profits in companies.

Added to the 150 billion yuan (US$23.6 billion) from the central budget stabilization fund, total revenue came to 5.28 (US$830.8 billion) trillion yuan.

The central budget stabilization fund was established in 2007 to regulate the spending of excess fiscal revenue. The central government reserve of 50 billion yuan (US$7.87 million) was drawn from the 257.3 billion yuan (US$ 40.5 billion) of excess revenue from the 2006 budget to establish the fund and put it under the budget supervision of NPC. And this year, this number rises to 150 billion yuan. The 150 billion yuan indeed can do something. But this also means that excess revenue has become a regular occurrence. Why does fiscal revenue always exceed the budget? Why not cut tax for companies? Chinese companies' tax burden is not reasonable. On one hand, there exists some unreasonable tax like the business tax. I pin my hopes on the ongoing reform of transferring the business tax to value added tax. On the other hand, a high tax rate causes a heavy tax burden. For example, China's VAT rate is 17 percent while the VAT rate in ASEAN member states is 10-11 percent. Only after China reaches an actual tax cut can Chinese companies' competitiveness be enhanced.

The central government spent 5.64 trillion yuan (US$887.4 billion) last year, 3.8 percent more than budgeted and 16.8 percent up than that for 2010.

People may feel disappointed when looking at this figure. The growth of spending is less than that of earning. Why doesn't the government spend more? In fact, there are many places in China that need fiscal investment, especially in fields concerning people's livelihood. According to a Xinhua news report, Indian government-backed public hospitals will provide 348 free medicines to all patients beginning this October. The government will provide 75 percent of the fund. This is an example of the function of public finances - to cover the margin left by the market. There is no such thing as "too much" for a government to invest in people's livelihood.

The fiscal deficit for 2011 is 650 billion yuan (US$102.3 billion), which was 50 billion yuan less than budgeted.

It's good to see the reduction of deficit. But if the money is spent on people's livelihood, it is understandable even though the number is bigger than that.

All in all, as the saying goes: "Economy decides the finance and finance reacts to the economy." Finance should be a barometer of the economy.

(This article was first published in Chinese and translated by Li Shen.)

Opinion articles reflect the views of their authors, not necessarily those of

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