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--State Council Advisor Urges 'Special Bonds' To Restore Economy
--Deficit-to-GDP Target May Exceed 3% On Tax/Fee Cuts, Spending Increase
--Part 2 of 2-Part Interview
BEIJING (MNI) - China could issue special retail government bonds and raise
the official budget deficit target to more than 3% of GDP to counter the
economic impact of the coronavirus outbreak and ease budget strains from tax
cuts and higher spending, an official advisor to the State Council, China's
cabinet, told MNI in an interview.
"We could issue special central and local government bonds targeting
sectors impacted by the virus, which could be effective in shoring up the
economy, and sell to the people rather than just institutional investors,"
Counsellor Liu Huan said.
There is a "high probability" that the authorities would set a fiscal
deficit ratio above 3%, requiring bigger national and local government bond
issuance quotas, with coronavirus prompting further tax cuts and bigger fiscal
spending, said Liu, a prominent fiscal expert.
As fiscal moves provide the bulk of stimulus, further monetary easing
should be put on hold to ensure policy coordination and to help curb rising
inflation, Liu said. Inflation already surged to an eight-year high 5.4% y/y in
January, government data showed.
However, moves to provide ample credit to small businesses should continue
unabated, said Liu, who is also the vice dean of School of Taxation, Central
University of Finance and Economics.
The counsellor said 2020 would be a tough year for fiscal authorities, as
cuts in taxes and fees enacted in 2019 and efforts fighting the viral epidemic
sap revenues just as more spending is needed to support an already-weakening
growth. The CNY2.3 trillion tax-and-fee cuts sent fiscal revenue growth to a
40-year low 3.8% last year, which was practically flat after 2.9% inflation, Liu
While the deficit will most likely expand, the authorities should still
consider further temporary cuts in value-added tax or even relieving corporate
income taxes for regions and sectors hard hit by the virus, Liu said.
This year, the central government will have to provide additional fiscal
support to local authorities, including transferring a part of consumption tax
collected to regional administrations and increasing transfer payments, Liu
said. Consumption tax raised CNY1.26 trillion last year, 6.6% of total tax
revenue, government data showed.
Refined oil products could be added to the list of consumption tax items to
be transferred to local government, which already includes high-end watches and
jewellery, although the national government will retain the important cigarette
and liquor categories, Liu said. Local government pension and social insurance
payments could also be eased, he said.
The authorities are mindful that official local government debt problem is
more than the around CNY20 trillion sum declared, but there are also projects
financed by implicit and government-backed debt, so approvals of special-purpose
bonds will only be granted following thorough examination of the intended
projects, Liu said.
Defaults by local-government funding vehicles will occur, but the impact
could be minimized with proper regulation, Liu said, adding that in the longer
run, the projects they financed would bring economic and social benefits.
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