Budget deficit leaves room to stimulate growth

PUBLISHED : Tuesday, 06 March, 2007, 12:00am
UPDATED : Tuesday, 06 March, 2007, 12:00am
 

China's projected budget deficit is sustainable and increased spending on social programmes such as education and health care could eventually help the government boost consumption as a source of economic growth, analysts said yesterday.


The Ministry of Finance has projected a budget deficit of 245 billion yuan for this year, which is only 1.1 per cent of gross domestic product and down from 275 billion yuan last year.


'That's quite small really,' said Paul Schymyck, regional economist for Cazenove Securities in Singapore. 'They do have room in the budget to stimulate things if they ever need to.'


Central government expenditure is projected to jump 14.4 per cent to 2.68 trillion yuan this year, while revenue will rise 15 per cent to 2.44 trillion yuan.


Total expenditure of all levels of government is projected to jump 15.7 per cent to 4.65 trillion yuan this year while revenue will rise 13.8 per cent to about 4.406 trillion yuan.


Under the proposed central government budget, spending on education is projected to rise 41.7 per cent to 85.8 billion yuan this year while expenditure on medical care will rise 86.8 per cent to 31.27 billion yuan. Spending on social security is forecast to rise 13.9 per cent to 201.9 billion yuan.


The budget reflects the government's cautious fiscal approach despite its ballooning tax revenues, with Finance Minister Jin Renqing repeatedly vowing to maintain 'a prudent and stable' fiscal policy, with an emphasis on cutting the budget deficit.


Revenue has soared in recent years thanks to robust economic growth.


Total tax revenue broke the 2 trillion yuan mark in 2003 and rose to 3.93 trillion last year, 392 billion yuan more than the figure projected in the budget.


The central government has also been reaping handsome extra-budgetary revenues in recent years and Beijing has decided to set up a special 50 billion yuan reserve fund to absorb the extra money to help balance the budget in bad financial years, says Premier Wen Jiabao's annual work report.


The extra-budgetary revenue reached 257.3 billion yuan last year.


Besides reducing the deficit of the current year and helping balance this year's budget, the extra money will also be spent on education, social welfare and tax rebates to local governments and exporting companies.


'Some of the main constraints on private consumption are people in China having to pay for things like education and health care,' Mr Schymyck said.


'Boosting all of these social programmes will take some of the pressure off private consumption and allow it to expand at a faster pace.'


China has made boosting domestic consumption a priority for driving economic growth, which has been heavily reliant on infrastructure spending, property development and manufacturing.


Increasing consumption involves encouraging the country's thrifty savers to take their money out of the banks, instead of putting it away for the future.


Despite the rises on spending in some areas, analysts said the budget deficit was not expected to widen greatly in the future.


'The scale [of the deficit] is not likely to widen in the future as the Chinese government will continue a prudent fiscal policy,' said Ding Jianchen , finance professor at the University of International Business and Economics in Beijing.


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