Bigger tax and fee cuts in pipeline

China is ready to effect more and bigger tax and fee cuts this year and proceed with additional targeted fiscal spending in key areas to safeguard steady economic growth, while the intensity of transfer payments from central to local governments will also be increased, China's finance minister said on Tuesday.

In an interaction on Tuesday with media ahead of the two sessions, or the annual sittings of China's top legislature and the top political advisory body, Liu Kun, China's finance minister, said this year, the government will carry out tax and fee cuts of a more sizable scale, hoping that it will generate greater sense of gains for market players.

Total tax and fee cuts reached 1.1 trillion yuan ($173 billion) in 2021, and this year, the amount will go up, Liu said.

He reiterated that this year, the intensity of fiscal spending will be kept at a proper level with priorities built around technological breakthroughs, environmental protection, basic livelihoods, key regional strategies, modern agriculture and key projects under the country's 14th Five-Year Plan (2021-25).

Also, he said the scale of transfer payments from central to local governments will be increased by a large margin, with a focus on ensuring basic livelihoods, salaries and normal operations of local-level governments.

"This year, the central government will notably increase the size of transfer payments, especially general transfer payments, from central to local governments, and such efforts will continue to favor localities with difficulties and underdeveloped regions," Liu said.

He also said governments at all levels will continue to tighten their belts this year and fiscal discipline at local levels will be enhanced further.

Shi Yinghua, a professor at the Chinese Academy of Fiscal Sciences, said the larger scale of transfer payments this year from the central government will seek to offset the pressure that greater tax and fee cuts may generate for local governments.

"With this year's upcoming larger scale of tax and fee cuts, compounded by a slowing economic growth, the growth of fiscal revenue of local governments is also likely to slow down," Shi said. "More intensified tax and fee cuts, in the long run, will be conducive to the growth of smaller businesses and manufacturing upgrade, yet they are likely to dent local fiscal revenue in the short term."

Liu noted in particular that to face the challenge of downward pressure, fiscal policies have already been loaded in advance. For instance, among the 1.46 trillion yuan earmarked to be raised from special local government bonds, some 484.4 billion yuan has been released in January. Bond proceeds were mostly spent on key areas like infrastructure facilities related to transportation, city planning, industrial parks and on improving affordable housing facilities.