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Budget deficit target set at 3% of GDP
Budget deficit target set at 3% of GDP
By Li Xuanmin
Source:Global Times Published: 2017/3/7 22:13:39
The nation set its fiscal 2017 budget deficit target at 3 percent of GDP, the same level as last year, reflecting a determination to "further reduce tax burdens and secure expenditures in key areas" this year, Finance Minister Xiao Jie told reporters on the sidelines of the National People's Congress on Tuesday.
Although the deficit-to-GDP ratio is unchanged, the government's budget is estimated at 2.38 trillion yuan ($345.05 billion) based on this year's GDP target, up 200 billion yuan year-on-year, Xiao said. He said that the increase reflects China's "pro-active" and prudent fiscal policy.
The deficit breaks down to 1.55 trillion yuan for the central government and 830 billion yuan for local governments, said the work report delivered by Premier Li Keqiang on Sunday.
Jiang Yunyun, a professor at the School of Economics at Peking University, told the Global Times on Tuesday that this year's deficit signals "Chinese policymakers' ongoing efforts to slash costs and improve efficiency in the corporate sector," which has struggled in recent years due to surging costs of production like labor and land.
According to the work report, the corporate tax burden is expected to ease by 350 billion yuan this year, with business-related fees to decline by about 200 billion yuan.
China began value-added tax (VAT) reform in 2012 to replace the business tax with VAT, and the move saved companies 570 billion yuan in tax last year, according to Xiao.
The government also began to lower social security contributions for employers. Those payments amount to about 40 percent of wage costs, according to a report JP Morgan sent to the Global Times on Tuesday.
China will continue its efforts this year to "simplify the tax structure and streamline various fees for companies," the report noted.
Zhuang Jian, an Asian Development Bank macroeconomist, said that certain "redundant and unreasonable fees" such as advance tax levies for companies at the beginning of each year based on last year's revenue are expected to be eliminated this year.
The target deficit will also support supply-side reforms that are vital to sustain China's robust GDP growth, especially to buffer a slowdown in the global economy, experts said.
For example, 800 billion yuan in local government special-purpose bonds to fund projects linked to public welfare will be issued in 2017, compared with 400 billion yuan last year, according to the work report.
Expenditures on research and development are also likely to increase to stimulate technological breakthroughs and nurture new growth engines, Zhuang told the Global Times on Tuesday.
He also suggested that fiscal incentives to be provided to balance risks and revenues in the infrastructure sector, so that "private companies will participate, enabling the government to boost the public-private partnership model."
During the press conference, Xiao addressed concerns that the fiscal deficit will raise financial risks. "The ratio is safe," he said, noting that any decision to expand the deficit depends on the government's debt-paying ability.
Jiang said that the international "3 percent red line" for the deficit-to-GDP ratio was proposed in 1991 by the EU and no longer suits current conditions.
"There are many countries, such as Japan and even some EU countries and regions whose fiscal deficits have jumped well above 3 percent. In this regard, China's deficit ratio is relatively low and also controllable," she noted.
Xiao also stressed that China's government debt-to-GDP ratio, which was 36.7 percent as of end-2016, is relatively low by global standards and leaves enough leeway for further adjustment.
But Zhuang warned that Chinese policymakers should "monitor closely" the debt-ridden State-owned enterprises (SOEs) that are plagued with overcapacity.
"If such SOEs miss debt repayments, it would mean a mushrooming of commercial banks' nonperforming loans, which would in turn pose risks to the country's financial system," he said.
Experts also pointed out that local governments' ability to borrow via special-purpose vehicles that allow them to skirt debt restrictions is an issue.
http://www.globaltimes.cn/content/1036492.shtml
