China plans to run a budget deficit little changed from last year as the government targets lower economic growth amid a slowdown in the property market and weaker demand for exports.
The gap will narrow to 800 billion yuan ($127 billion) in 2012 from 850 billion yuan last year, the Ministry of Finance said in its budget report to the National People’s Congress in Beijing today. The shortfall will amount to about 1.5 percent of the nation’s gross domestic product, it estimated.
China’s ruling Communist Party said in December it will implement a “proactive” fiscal policy for the fourth year to boost consumption as it seeks to sustain growth while reducing the nation’s dependence on investment and exports for expansion. Premier Wen Jiabao, who today set a growth target of 7.5 percent for 2012, has pledged to adjust taxes and boost spending on the environment, energy and water conservation to tackle rising pollution.
“This is a ‘steady as she goes’ budget,” said Stephen Green, chief Greater China economist at Standard Chartered Bank Plc in Hong Kong. “The economy doesn’t seem to need a big stimulus at the moment, but if there was a more significant slowdown the government would call the finance ministry to ask them what they’ve got.”
China’s growth may moderate to about 8.5 percent this year, the Ministry of Industry and Information Technology estimated in a statement on its website on Feb. 29. The economy expanded 9.2 percent in 2011, slowing from 10.4 percent the previous year, as the government wound down a two-year fiscal stimulus introduced in late 2008 to shield the nation from the global financial crisis.
Wen’s growth target for this year, announced in his report to the National People’s Congress, is the lowest since 2004.
Fiscal spending will rise 14.1 percent this year to 12.43 trillion yuan and revenue will grow 9.5 percent to 11.36 trillion yuan, excluding transfers from the budget stabilization fund, the finance ministry said. The government will move 270 billion yuan from its stabilization fund, taking total fiscal revenue to 11.63 trillion yuan, according to the report.
The stabilization fund is a “rainy day” fund where excess fiscal revenue is deposited and then released when needed, according to the ministry.
“The deficit may be set lower but this can still be an expansionary fiscal policy - the key is how they spend the money,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “Spending on areas such as education, health and social protection instead of public investment would be strongly positive for household consumption, which is exactly what China needs.”
Central government expenditure on issues that “directly affect people’s lives,” including education, medical and health care, social security and housing, will rise 20 percent to 1.38 trillion yuan, according to today’s report.
The ministry also pledged to reduce the tax burden on logistics companies and businesses that produce and distribute farm products, and take other measures to cut logistics costs. It will provide subsidies to local governments to phase out tolls on government-financed so-called Grade II highways.
China’s food inflation averaged 11.7 percent last year, more than double the pace of total consumer-price gains. Premier Wen pledged last year to reduce transport costs as part of efforts to bring down food prices.
A national audit report last year found companies set up by local governments to fund infrastructure had racked up debts of 10.7 trillion yuan by the end of 2010. The ministry said today new local government debt would be “strictly controlled,” existing loans would be cleared up “in a step-by-step manner” and responsibility for repaying them clarified.
The report didn’t refer to any expansion of trials that started last year allowing some local authorities to issue their own bonds for the first time to alleviate the debt burden on the local government financing vehicles.
The amount of bonds the ministry issues on behalf of local authorities will rise by a quarter to 250 billion yuan this year to fund low-income housing and public welfare projects, according to today’s report.
The government started issuing debt for local governments in 2009 to help them fund infrastructure projects as part of a 4 trillion yuan stimulus plan announced in November 2008 to cushion the economy from the impact of the global financial crisis. The finance ministry issued 200 billion yuan in 2009, 2010 and 2011.
As part of a campaign to rein in property prices and make housing more affordable, the government last year announced a plan to build 36 million units of low-cost housing from 2011 to 2015.
Central government funds to “guarantee adequate housing” this year will rise 23 percent to 212 billion yuan, while the amount of money for low-income housing projects, rural housing renovation and subsidies will increase 25 percent to 179 billion yuan, the ministry said today. Local governments are expected to spend 62.5 billion yuan of their own funds on low-income housing, it said.
Central government spending this year on social security and employment will rise 22 percent, funds for education will increase 16 percent, and expenditure on agriculture, forestry and water conservation will rise 14.8 percent, according to today’s report.
Even as Premier Wen warned today that targets for energy conservation and emissions reductions aren’t being met, growth in spending on energy conservation and environmental protection will lag the pace of total fiscal spending this year, rising by 9 percent, according to the finance ministry.
Central and local government fiscal revenue from individual income tax is forecast to drop 6.4 percent this year after the ministry raised the monthly threshold and reduced the number of tax payers by 60 million.
The ministry is also budgeting an 18.6 percent drop in local government revenue raised through the sale of land-use rights to 2.7 trillion yuan, according to the report.
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