Deficit may hit 70b yuan

PUBLISHED : Thursday, 10 March, 1994, 12:00am
UPDATED : Thursday, 10 March, 1994, 12:00am

CHINA is heading for a deficit of nearly 70 billion yuan (HK$62.16 billion) this year, according to the budget speech that Finance Minister Liu Zhongli will deliver to the National People's Congress tomorrow.

The Budget will paint a grim, if realistic, picture of the financial state of the country.

Sources who read a copy of Mr Liu's speech last night said the Finance Minister had predicted a slowdown in the growth of revenue and a surge of expenditure this year, leading to a gargantuan shortfall.

Total expenditure in 1994 is projected at 542.9 billion yuan, up by 15 per cent from last year.

The central treasury is forecast to receive a total of 475.9 billion yuan of revenue this year, representing a 7.7 per cent increase over the previous year.

This results in a budgetary shortfall of 67 billion yuan.

By contrast, the budget deficit for 1993 was 20.5 billion yuan.

However, Mr Liu said the accounting system this year had been changed to bring the Budget more in line with international practice.

Chinese economists said last night that the change had made it difficult to gauge the true extent of the difference between the deficits.

They pointed out that if the new accounting system had been used last year, the deficit would have been much higher than 20.5 billion yuan.

Mr Liu said that the increase of revenue for 1994 would be ''restrained'' by the fact that the ''revenue base'' last year was already considerable and that room for expansion was limited.

Tax exemption to be given to the ailing state industrial sector would mean a cut of income of 14 billion yuan, he said.

Mr Liu also said the total size of domestic and foreign debts would reach a staggering 129.2 billion yuan this year, up by 39.3 billion yuan from 1993.

Allocations for agriculture would be boosted to 37.8 billion yuan, which translated into a dramatic growth of 17.4 per cent over the previous year.

Agrarian-related expenditure include the setting up of a risk fund, increased investments for the rural sector in general, and measures to guarantee an increase for the income of farmers of at least five per cent a year.

Science, technology, culture, and education will get an increase of funds from 18 to 20 per cent in the face of frantic lobbying from these sectors.

On the expenditure plan for 1994, a staggering 187.4 billion yuan has been set aside for providing funds to regions.

It is understood that these cover tax returns to regions under the new tax reform programme.

Non-production type of infrastructure is estimated to cost the central treasury a total of 12 billion yuan.

Expenditure on social development will reach 19.4 billion yuan.

A total of 62.3 billion yuan will be spent under a category called ''construction of the Government and regime''. It is not known whether that also covers defence expenditure.

The central treasury is to spend a total of 13.1 billion yuan on price subsidies.

According to the Budget, the actual revenue in 1993 stood at 511.4 billion yuan, up by 23.2 per cent.

The actual total expenditure last year was 531.8 billion yuan, representing an increase of 21.2 per cent.

Total expenditure on defence in 1993 was 43.2 billion yuan, slightly higher than the estimate of 42.5 billion yuan in last year's budget.

The Budget attributes the increase of expenditure to funds for money-losing enterprises, wages doubling from an estimated four billion yuan to eight billion.

The Finance Minister revealed that the financial situation both at the central and region levels had been so severe that some regions had met difficulty in paying wages for workers.

Describing the financial situation as ''severe'' and ''tough'', Mr Liu said the tight situation would be aggravated further by factors such as the high-level investment in fixed-assets, increased procurement prices for grain, and higher expenditure on wages for civil servants.

Mr Liu has laid down the major tasks for this year as: tightening control on expenditure; strengthening macro-level adjustment and control; cutting expenditure by governments of all levels; increasing funding for education, agriculture and infrastructuredevelopment; and limiting the money supply.

The Finance Minister also indicated that funds for national defence and the law-and-order establishment would be ''assured''.

Analysts expect the defence budget to go up on a par with the 13 per cent increase granted to the People's Liberation Army last year.

In his 25-page report, Mr Liu insisted that drastic fiscal reform in the past two months had proven ''correct'' with no major problems resulting.

But he would call on legislators not to relax their fiscal prudence because there was always discrepancy between the targets laid down in the policy and the reality.

''This is inevitable,'' Mr Liu said.

He urged regions to co-ordinate their interests and keep a constant watch on the implementation of tax reform.

Any problems should be nipped in the bud before they get worse, he said.

Regions were warned to take the ''overall national interest'' above their own and not to make their own local regulations on taxes and other financial matters.

Mr Liu will also urge delegates to strictly follow the Budget, adding any local-level budget deficits ''will not be acceptable''.

The battle against malpractices in taxation such as evasion and avoidance should continue unabated, he said.

Localities will also be asked to ensure the smooth issuing of government bonds.

Under the new Budget, the central Government is to curb expenditure while ensuring adequate funds for essential capital projects.

No new projects will be allowed, while existing projects whose funds are yet to be secured will be suspended or scrapped.

Both Mr Liu and the Minister of State Planning, Chen Jinhua, who will deliver a report on social and economic development tomorrow, will recommend tough measures to fight inflation, including the temporary scaling back of price reform.

The semi-official Hong Kong China News Agency reported last night Beijing had decided to retain ''direct control'' over five categories of commodities in the coming three to five years.

They include commodities ''essential to the long-term development of the economy'' such as oil, gas and rare metals; housing and rentals for civil servants and citizens ''with low income''; certain types of commodities under tight government control suchas pharmaceuticals and weapons; utilities such as water, consumer electricity and public transport; and services including education and medical charges.

The agency indicated, however, that price reform would still be implemented with reference to other commodities and services.