China’s Government Faces Worst Fiscal Stress Since 2009
China’s Government Faces Worst Fiscal Stress Since 2009
(Bloomberg) -- China’s government is facing the worst fiscal situation since the global financial crisis more than a decade ago, with revenue falling after the government shut down economic activity in February to curb the spread of the coronavirus.
The income of central and local governments contracted 9.9% in the first two months of the year compared to a year ago. That was the deepest fall since February 2009.
Tax revenue declined more than 11%, with drops in value-added taxes, corporate income taxes and car purchase taxes undercutting the government’s coffers just as it needs to find extra money to stimulate the economy.
Spending also dropped, but a surge in outlays on health-care and social security kept the decline to 2.9% from a year ago. The main budget surplus was 288 billion yuan ($41 billion) in the first two months, according to Bloomberg calculations.
The main budget generally starts in surplus and then falls into deficit as more is spent over the course of the year. That situation may be even worse this year, with the surplus at this point the smallest since 2009.
The tight fiscal conditions adds to the urgency for the government to raise money from bond sales and allow a higher deficit in 2020. This year’s budget hasn’t been released yet due to the health crisis, but some economists expect policy makers to let the fiscal deficit exceed 3% of gross domestic product, a red line the government hasn’t broken for more than a decade.
The government could also sell more special bonds than it did in 2019 to finance local infrastructure programs.
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With assistance from Bloomberg