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Stimulus spending tests fiscal balance amid crisis

(Xinhua)
Updated: 2009-02-26 22:15

BEIJING -- China's deficit hit a record 309.69 billion yuan in 2002, or 3.02 percent of GDP. At the time, the country had an active fiscal policy, which dated back to 1998 as part of its response to the Asian financial crisis.

A crane drive piles as the construction of the No.4 Cross Yangtze River Bridge started in Nanjing, capital of east China's Jiangsu Province, Dec. 28, 2008. [Xinhua]

Under the EU pact, governments may not run a budget deficit greater than 3 percent of GDP.

The red ink began to shrink in 2005, when a more prudent fiscal policy was adopted. The deficit was less than 0.4 percent last year.

Government revenue, even during years of strong growth, was not enough to fund all the public services the government offered.

"The steady rise in fiscal revenues before this year reflected the 1994 tax reforms, which redistributed revenues between the central and lower-level governments," said Yang.

Government revenue comprised only 10.27 percent of GDP in 1995. It rose to 20 percent last year, well below the international norm of 30 to 40 percent, he said.

"There are no other countries in the world like China that face such a huge task of providing public services to a population of 1.3 billion. It is no easy job to provide services with less than US$1 trillion a year," said Bai.

Per-capita government revenue in China was less than 10 percent that of developed countries, he said.

Nonetheless, late last year, the government announced massive tax cuts, along with a 4 trillion yuan stimulus plan for the economy. Those cuts, and the slowing economy, have had a dramatic impact on revenue.

MOF data showed tax revenue fell 16.7 percent to 563.9 billion yuan in January. Breaking down the total, corporate income tax fell 24.8 percent and car purchase taxes slid 21.2 percent. Export tax rebates jumped 25 percent, reflecting higher rebate rates to help exporters deal with falling foreign orders and mounting inventories.

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