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Fiscal fitness

(China Daily)
Updated: 2009-07-15 07:48

The double-digit growth of fiscal revenue in June will allow Chinese policymakers to get their breath back after seeing the government's revenues shrunk by 7 percent year on year in the first five months.

Though the country still faces an uphill struggle to meet its target of 8-percent growth in government revenues this year, the latest improvement in the health of fiscal accounts indicates that China has a great chance to survive the ongoing global recession without sacrificing fiscal sustainability.

China's fiscal revenue jumped by almost 20 percent in June after a 4.8 percent revenue growth in May reversed the recent downtrend.

This is much-needed good news for Chinese policymakers who have been greatly concerned over the looming gap between declining revenues and soaring fiscal expenditure.

To combat the worst global financial and economic crisis in many decades, the Chinese government has promptly spent a huge sum of public funds since the end of last year to boost investment, encourage consumption and cushion export.

Meanwhile, slowed economic growth has resulted in less business activities and a consequent sharp decline in tax revenues.

Despite China's sound overall fiscal position in previous years, the widening gap between revenue and expenditure in recent months has sparked worries that the country's strong fiscal stimulus might be either unsustainable or unbearable for taxpayers.

But now, accelerated revenue growth is building confidence among policymakers that it pays to fuel the ongoing economic recovery with a temporary fiscal deficit.

The rapid growth of fiscal revenue in June, as a result of an improving economy, has stressed the importance of a pro-active fiscal policy in easing recession.

More important, by bringing back a fiscal surplus for June, it assured Chinese policymakers that, as a counter-crisis measure, the unprecedented fiscal stimulus is both necessary and viable.

The Ministry of Finance was quick to warn that the foundations for such strong fiscal revenue growth were not solid enough.

True, given the tremendous uncertainties surrounding a lasting recovery at home and abroad, it is still hard to tell how much more fiscal stimulus may be needed.

Yet, robust growth of fiscal revenues should give policymakers the confidence to make optimum use of the country's fiscal strength for sustaining an economic recovery.

(China Daily 07/15/2009 page8)