China government spending flat in August as tax cuts drain revenue, delay projects

Total government spending fell 0.2 per cent in August compared to a year earlier, the first month this year that spending did not increase

Tax revenues fell 4.4 per cent to 9 billion yuan (US$1.2 billion) over the same period

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To boost infrastructure spending, Beijing has eased some restrictions on how special purpose bonds are issued. Photo: Reuters

Published: 1:30pm, 20 Sep 2019Updated: 1:30pm, 20 Sep 2019

Government spending in China was virtually flat in August, the first time this year it has not increased, as lower revenue following personal and business tax cuts held back projects meant to help stabilise growth.

Total government expenditure in August - including both the central and local governments - declined 0.2 per cent to 1.511 trillion yuan (US$212 billion) compared to the same month last year, based on calculations from data released by the Ministry of Finance this week. Total expenditures in August rose 3.4 per cent compared to July.

Total expenditure from January to August this year amounted to 15.31 trillion yuan (US$2.1 trillion), up 8.8 per cent from the same period in 2018, according to the Ministry of Finance.

Tax revenue, which accounts for about 80 per cent of overall government income, fell to 9 billion yuan (US$1.2 billion) in August, down 4.4 per cent from the same period a year ago.

While enterprises have benefited [from the tax cuts], the growth of fiscal revenues has slowed down noticeably, and some local governments are in a tight budget situation

Xu Hongcai

China began a multibillion-dollar tax cut programme last year to fight its slowing economy and effects of the trade war with the United States, reducing individual and corporate taxes to help steady growth. But there are signs that the loss of revenue from the tax cuts is hamstringing local government budgets, leaving Beijing less room to manoeuvre to support growth.

Vice finance minister Xu Hongcai told a forum on Thursday that the scale of tax reductions for the full year may exceed the government’s previous estimate of 2 trillion yuan ($US281 billion).

“While enterprises have benefited [from the tax cuts], the growth of fiscal revenues has slowed down noticeably, and some local governments are in a tight budget situation. In this case, it is necessary to strengthen budget management and use the money where it matters most,” Xu was quoted as saying by official Chinese press.

Local governments have been under increasing pressure from Beijing to deliver results to support the economy but there is less budget room to spend due to the lower tax revenue.

“A lot of the spending happened in the first half of the year,” said Rory Green, an economist at London-based research firm TS Lombard. “As we are coming into August, over the third quarter, there’s less money to spend.”