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Analyzing fiscal growth

(China Daily)
Updated: 2008-08-18 17:25

An explanation about China's faster-than-expected tax revenue growth is much needed now. But a break-up of tax revenues collected in the first half of the year alone, as published by the Ministry of Finance during the weekend, still leaves some questions unanswered.

According to the Ministry's statistics, the country's fiscal revenue reached 3.48 trillion yuan ($507 billion) in the first six months, up 33.3 percent from the same period last year, while fiscal expenditure grew 27.7 percent to 2.29 trillion yuan.

Double-digit growth in tax revenues was nothing new to the Chinese economy that has expanded by more than 10 percent in the past five years. However, while the national economy is undergoing a gradual slowdown, it is unusual that the country's tax revenues are growing even faster.

Due to natural disasters, credit tightening and weaker external demand, China's economic growth cooled from an annualized 10.6 percent in the first quarter to 10.1 percent in the second quarter. The economy's expansion has slowed for four quarters by now, so it is surprising that the growth in tax revenues can still be accelerating.

The Ministry of Finance attributes the increase of fiscal revenue between January and June to stable and fast growth of the economy, rapid expansion of the taxation base and enhanced tax collection, indicating that there has not been a heavier burden for taxpayers.

Such an official explanation may be pertinent to the reality. After all, the Chinese economy is still expanding at a double-digit pace. As a result, corporate income tax reached 791.3 billion yuan in the first half, up 41.5 percent.

Nevertheless, it differs little from the reasons that financial officials had offered to explain robust fiscal revenue growth in previous years. When China enjoyed high-speed economic growth and low inflation a few years ago, such an explanation might have worked to allay doubts in the public mind about the gap between tax revenue growth and the growth of GDP. At that time, the growth of industrial profit was usually faster than the growth of the economy, contributing to even faster growth of tax revenues.

But things have changed now. A gradual slowdown of the Chinese economy and rising inflation have together considerably affected enterprises' profit margins. Besides, the country has also cut taxes for deposit interest, corporate income and stock transactions. Under such circumstances, it is natural for the public to expect a new explanation for the surge in tax revenues.

The government has made it a top priority to increase people's income, so as to boost domestic consumer spending and its share in the GDP. Further explanation of the rocketing fiscal growth may thus help clarify the roadmap to achieve that goal.