OPINION> Commentary
Govt's deep pockets
(China Daily)
Updated: 2008-08-11 08:39

A huge fiscal surplus can leave the Chinese government ample leeway to preempt a post-Olympic economic slowdown experienced by many other host nations.

Yet, it is more important that the government should make better use of its growing financial muscle to improve people's living standards.

With China's fiscal surplus hitting 1.19 trillion yuan ($174 billion) in the first half of the year, the government is well prepared to boost fiscal spending to stimulate investment and thus keep the country's fast economic growth on track.

Thanks to severe natural disasters, credit tightening and weaker external demand, China's economic growth cooled from 10.6 percent in the first quarter to 10.1 percent in the second quarter.

A worsening global growth outlook that hits Chinese exporters hard and the rise of international food and oil prices that keeps fuelling domestic inflation have triggered fears about a post-Olympic slowdown.

Some recent policy shifts to increase tax rebate for textile exporters with paper-thin profit margins and raise loan quota for small- and medium-sized enterprises confirmed increasing concerns over the country's growth prospect.

Now, the trillion-yuan worth of fiscal surplus makes it almost a sure bet that the government can use its deep pockets for investment to offset external drags and maintain stable and fast economic growth.

Statistics showed the country's budget revenue totalled 3.48 trillion yuan from January to June, up 33.27 percent compared with the same period last year; budget expenditure stood at 2.28 trillion yuan, up 59.52 percent year on year.

A rapid fiscal expansion will meet the financing need of both post-disaster reconstruction and infrastructure investment scheduled in the 11th Five-Year Plan (2006-10).

But such fiscal support is not enough to facilitate the change of the country's growth pattern.

China has long relied on export and investment for economic growth. To pursue energy-saving, environment-friendly and sustainable development, the country has to focus on developing domestic consumption into a bigger growth engine. To this end, people's income as a share of the country's gross domestic product must be significantly increased.

Undoubtedly, the massive fiscal surplus will enable the government to deliver needed tax and fiscal policy changes that considerably raise people's purchasing power.

Some people have suggested that the interest tax be scrapped. Some pleaded for a rise in the individual income tax threshold. Some others have called for larger government subsidies to cushion low-income families against inflation.

With the rapid accumulation of fiscal surplus, it is high time for policymakers to consider these options seriously.

(China Daily 08/11/2008 page7)