Fiscal revenue declines amid stimulus spending

PUBLISHED : Tuesday, 17 February, 2009, 12:00am
UPDATED : Tuesday, 17 February, 2009, 12:00am

The central government's fiscal revenue dropped 17.1 per cent last month, underscoring rising funding pressure in its effort to revive the sliding economy through a spending spree.

The nation collected 613.16 billion yuan (HK$696.49 billion) last month, 126.5 billion yuan less than January last year, the Ministry of Finance said yesterday.

Fiscal revenue, which includes tax receipts and other income, contracted for the first time in 12 years in October last year as policy-related tax cuts and slower economic growth began to be felt.

Revenue fell 0.3 per cent year on year in October, declined 3.1 per cent in November and then increased 3.3 per cent in December.

The ministry attributed last month's 'relatively big decrease' to lower corporate profits, a flood of tax exemption and reduction measures, and the week-long Lunar New Year holiday, which was in January this year but in February last year.

'The revenue decline [stemmed from the] series of fiscal stimulus programmes,' said Gao Shanwen, an economist at Essence Securities in Shenzhen.

'China will definitely continue to rely heavily on fiscal policies to support the economy, though some government departments may be unhappy to see revenue diminish and expenditure boosted.'

In November, Beijing unveiled a 4trillion yuan fiscal stimulus package that will fund infrastructure projects to create demand for the rapidly cooling economy.

About 1.18 trillion yuan or 29 per cent of the scheme will come from the central government and the rest from local governments, banks and companies.

Economists said Beijing had plenty of room to boost the economy by spending because of its abundant funds after five consecutive years of double-digit economic growth and high tax rates.

The country's fiscal revenue reached 6.13 trillion yuan last year, up 19.5 per cent from 2007.

Expenditure totalled 6.24 trillion yuan, up 25.4 per cent. The deficit of 111.1 billion yuan was just 0.37 per cent of last year's gross domestic product.

The government had a large surplus in 2007, as revenue jumped 32.4 per cent to 5.13 trillion yuan, outpacing the 23.2 per cent increase in spending to 4.98 trillion yuan.

However, tax revenue is slowing quickly.

Last month, tax revenue dropped 16.7 per cent year on year to 563.9 billion yuan.

Revenue from stamp duty on securities transactions plunged 95.7 per cent, car purchase taxes yielded 21.2 per cent less, trade tariffs generated 19.3 per cent less and total export rebates rose 25 per cent after new taxation policies were launched.

Economists expect the central government's deficit to range between 500 billion yuan and 800 billion yuan this year.

'The deficit is estimated at less than 3 per cent of GDP, a level China is capable of handling,' Mr Gao said.