MNI EXCLUSIVE: China Modest Deficit Hike Notes Risks: Advisor

     BEIJING (MNI) - In setting a higher, but lower-than-expected, deficit ratio

for this year, China is attempting to project a sense of fiscal discipline and

risk awareness as it plans an unprecedented CNY2 trillion tax-and-fee cut

stimulus package, government advisors told MNI.

     When setting the deficit-to-GDP ratio, policymakers had to consider fiscal

responsibility and allow room for contingencies, Liu Shangxi, head of the

Chinese Academy of Fiscal Sciences (CAFS) under the Ministry of Finance, told

MNI. 

     Having already authorized increased local government special bonds quotas

and allowed bigger local government deficits, Beijing does not need to raise

central government's debt/GDP ratio, Liu said. 

     On Tuesday, Premier Li Keqiang said the government was targeting a deficit

ratio of 2.8% this year from 2.6% in 2018, allowing the budget deficit to rise

by CNY380 billion to CNY2.76 trillion, confirming MNI's previous reporting that

the 3% deficit ratio wouldn't be breached this year.

     According to Liu, keeping the deficit below 3% didn't trigger a round of

excessive fiscal expansion and was in line with Premier Li's oft-repeated mantra

of not flooding the economy with stimulus.

     To help balance the books, China has cut the spending growth target to 6.5%

from 8.7% in 2018, with revenue growth dropping to 5% from 6.2%.

     --CORPORATE TAX

     Presented with a raft of plans to cut the tax burden, the authorities

discussed but decided against cutting the overall corporate income tax (CIT).

     "It is not necessary for an overall corporate income tax cut as we have

already launched a tax cut targeting small businesses this year," Sun Ruibiao,

the deputy head of the State Administration of Taxation, told MNI. 

     The current 25% nominal corporate tax rate in China isn't high compared

with other countries, he said.

     Zhang Bin, a researcher at the National Academy of Economic Strategy of the

Chinese Academy of Social Sciences, said a series of preferential tax measures

already brought the actual CIT rate below the average 25% nominal rate.

     "Compared with value-added tax and social insurance contribution cut, a

reduction in corporate income tax is not so urgent," and cutting taxes won't

help unprofitable firms, Zhang said.

     --'VERY TOUGH TIME'

     Underlining the fact budget compromises were -- and will -- be needed,

Finance Minister Liu Kun said this week that fiscal authorities will have a "

very tough time" coping with the pressures of balancing spending and revenue.

     Some see a silver-lining in the gathering gloom, with CAFS's Liu Shangxi

saying belt-tightening measures could be an opportunity to pressure government

into reform and improve efficiency.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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