Proactive fiscal measures to boost recovery

China will continue to take proactive fiscal steps to consolidate economic recovery momentum and control government debt for financial stability, the Ministry of Finance said on Thursday.

Fiscal measures, especially for consistent tax and fee cuts, should remain supportive for economic recovery and production resumption, a spokesman from the ministry said on Thursday.

The government's budgetary revenue peaked in the fourth quarter, with a year-on-year growth rate of 5.5 percent, thanks to the economic recovery and supportive fiscal measures that sustained industrial production, the ministry said.

The annual general public budget revenue stood at 18.29 trillion yuan ($2.82 trillion) last year, down 3.9 percent on a yearly basis, which was "better than expected". Government spending increased 2.8 percent year-on-year to 24.56 trillion yuan, which has supported investment in key areas including public health, social security and employment. Spending on improving the public health system that is directly related to COVID-19 control rose by 74.9 percent, according to the ministry.

China's economy has shown a trend of stable recovery amid the ongoing COVID-19 pandemic and the global uncertainties, though some industries are still digesting the negative effects. The country will further implement the tax and fee reduction policy and maintain fiscal actions that are consistent and stable. Such measures include value-added tax reform, additional individual income tax deductions and tax relief for small and micro enterprises, the spokesman said.

Total tax revenue last year stood at 15.43 trillion yuan, down 2.3 percent from the level in 2019. Non-tax revenue dropped 11.7 percent year-on-year, the official data said.

China came out with a special fiscal stimulus package last year to strengthen financing support for sectors hit by COVID-19. The fiscal deficit rose by 1 trillion yuan, while the fiscal deficit-to-GDP ratio increased to more than 3.6 percent from 2.8 percent in 2019. Local government special bond quotas rose to 3.75 trillion yuan, up 1.6 trillion yuan from 2019, while the central government issued 1 trillion yuan of special anti-COVID Treasurys.

All these measures have helped narrow the gap between higher expenditure and lower fiscal revenue, said officials from the ministry.

By the end of 2020, the outstanding local government debt stood at 25.66 trillion yuan, which was under the ceiling of 28.81 trillion yuan set by the nation's top legislature. The government's total debt outstanding, which also includes central government debt, reached 46.55 trillion yuan, or 45.8 percent of the total GDP in 2020, lower than the international warning limit of 60 percent, according to the ministry.

The spokesman said that the ministry will continue to control the debt level and maintain a stable macro leverage level. This year, authorities will set a reasonable scale of government bond issuances and prepare for investment projects early.

For local government special bonds, a special debt instrument that mainly raises funds for infrastructure construction, the time limit of issuances should be appropriately relaxed, and the scope of using the bond should be expanded with improvement in efficiency, the spokesman said.

Li Xin, deputy resident representative in China of the International Monetary Fund, said on Thursday that China may need to maintain a moderately expansionary fiscal stance this year, with the policy focus shifting from infrastructure investment to household support.

"A synchronized public investment push by the largest economies with fiscal space to do so can enhance effectiveness of individual actions and boost cross-border spillovers through trade linkages," the IMF said in a report, suggesting that fiscal spending should emphasize green infrastructure and digitalization to raise productivity growth.