SCIO press conference on fiscal reform and development
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E-mail China.org.cn, February 27, 2022
Bloomberg:
I have three questions. I'll be very quick. Most of the provinces expect weaker revenue growth this year while spending continues to increase. What's your estimate for national income and spending this year? And what will the central government do to help regional governments meet their needs? What is your target for tax and fee cuts this year? And in the People's Daily last Friday, you wrote that transfer payments from the central government to local governments will be increased by a relatively large margin. How big do you estimate this payment will be? And how will this help offset the impact of tax and fee cuts? Thank you.
Liu Kun:
Your questions are highly specialized. I'd like to answer them. As a matter of fact, your questions involve our need to set an appropriate deficit-to-GDP ratio target, increasing spending, implementing larger tax and fee cuts, and increasing transfer payments to local governments. In view of the composition of your three questions, you may feel that some of these goals are hard to achieve, but China's socialist system has its strength. And we want to solve these problems properly and hope to achieve our goals this year. The answers I give you today may be brief, but I hope and expect you will find them in this year's budget report to the National People's Congress.
You mentioned that the regional revenue is expected to be relatively low. In fact, this is a result of our arrangement for tax and fee cuts, which is still under approval, while the overall direction is clear. That's why local governments have taken tax and fee cuts into account when they forecast their revenue. However, we will increase transfer payments from the central government to local governments to make up for the loss of local revenue.
Mr. Xu Hongcai is in charge of the budget. I'd like to invite him to provide a more detailed answer.
Xu Hongcai:
Thank you for your questions. Your questions are really important, and can be summed up below. The first question is about the imbalance between revenue and spending this year –weaker revenue growth and increased spending. This creates a contradiction between revenue and spending. The second one, or the third question you asked, relates to what the central government will do in such circumstances to increase transfer payments to local governments and ensure their spending can be guaranteed. The third question involves budget arrangements and this year's target. I will answer them one by one in this order.
Tax and fee cuts are indeed an issue of great concern to market entities. In recent years, the MOF has taken it as an important first move in stimulating the vitality of market entities, and strived to reduce government revenue for increasing corporate performance and boosting market vitality. We use tax and fee cuts to boost economic growth. As a matter of fact, tax and fee cuts appear to reduce revenue, but in fact they will bring economic growth and subsequent fiscal revenue increases. Here, I would like to share with you some data.
The first is 1.1 trillion yuan. This was the scale of tax and fee cuts nationwide in 2021, with a focus on supporting the upgrading of the manufacturing sector and the development of micro, small, and medium-sized businesses as well as self-employed individuals. The 1.1 trillion yuan in tax and fee cuts were achieved against the backdrop of continued tax and fee cuts in the last few years as well as growing pressure from fiscal imbalance. We have effectively helped market entities overcome difficulties and stimulated their vitality with solid measures.
Second, in the six years since the beginning of the 13th Five-Year Plan (2016), China reduced 8.6 trillion yuan in taxes and fees, an unprecedented scale in China's history and a relatively large scale worldwide. Through continued tax and fee cuts, the ratio of tax revenue in China's GDP also decreased from 17.5% in 2016 to 15.1% in 2021.
Now comes the third set of data. In total, there are more than 150 million market entities in China. Among them, 13.26 million were newly set up in 2021 and have engaged in tax-related activities, up 15.9% year on year. The implementation of tax and fee cuts has eased the burden of millions of market entities, strengthened economic resilience, and played an important role in meeting challenges and stabilizing economic fundamentals.
What we wish is that businesses can sustain themselves and assure success for the future. As I mentioned just now, despite the expected sluggish revenue growth and serious budgetary constraints, our tax and fee-cutting policies will bolster economic growth and gradually boost fiscal revenue. This year, finance departments will resolutely carry out the decisions and deployments of the CPC Central Committee and conscientiously implement a combination of policies to cut taxes and fees so as to further vitalize market entities.
First, the policies will be expanded. We will continue extending a total of 11 tax and fee reduction policies to the fields such as science and technology, employment, business start-ups, health care, and education. Some of the policies will be more preferential than before, and a slew of new measures will be adopted as soon as possible.
Second, the policies will be more targeted. In particular, we will formulate a series of supporting policies in order to boost the high-quality development of manufacturing and help micro, small, and medium-sized enterprises overcome difficulties and promote sci-tech innovation.
Third, the policies will be well coordinated. We will coordinate tax and fee-reducing policies with other incentives such as proactive fiscal policy, monetary policy, and industrial policy so that we can lend the needy a strong hand through the synergy gains.
Your second question, according to my understanding, is about how to guarantee local governments' fiscal expenditure as the growth of local fiscal revenue slows due to the tax and fee cuts. Mr. Liu has given the answer: The central finance will increase its transfer payments to local governments, a priority of this year's central budget. The increased transfer payments will be mainly channeled to regions in financial difficulty, underdeveloped areas, and places where revenues dramatically dropped because of tax and fee cuts. Meanwhile, we will improve incentive and constraint mechanisms, encourage local governments, at both provincial and municipal levels, to reinforce financial resources at the county level. We will further increase transfer payments, adopt related guiding policies, and support local governments' efforts in cutting taxes and fees and ensure payment of salaries, normal operations, and the basic wellbeing of the people, thus securing the sound operation of local finances. As always, certain funds will go straight to the targeted areas to meet their policy goals.
Your third question is about this year's targets for tax and fee cuts. Mr. Liu has suggested you watch the budget report to be issued at the upcoming NPC session. It will tell you all.
Thank you.
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