Consumption prioritized as fiscal focus

Minister vows proper expansion in expenditure intensity for momentum

China's fiscal policy is likely to see more deliverables this year in boosting consumption in specific sectors, such as new energy vehicles and tourism, with expansion in overall expenditure intensity, experts said on Thursday.

Their comments came after the Ministry of Finance released a speech late Wednesday by its minister Liu Kun during last year's work conference on the fiscal front in December.

Liu said that fiscal policy will place more efforts this year on anchoring market expectations, stabilizing investment and boosting consumption, while the overall intensity of expenditure will be properly expanded.

Specifically, fiscal policy will be stronger to satisfy the needs of macroeconomic coordination and guard against fiscal risks in parallel. The current tax and fee cuts, exemptions and deferrals will continue and be optimized in light of actual conditions. The role of guarantee institutions for government financing will be brought into full play to support more affordable and accessible financing for small and micro businesses.

The role of fiscal policy will be further prioritized this year to promote consumption recovery and growth, Liu said.

Efforts will be made to increase household income via multiple channels, especially for those low and middle-income households that were hit hardest by the COVID-19 pandemic, he added.

Su Jingchun, an associate professor at the Chinese Academy of Fiscal Sciences, said that based on the minister's speech, fiscal policies are likely to lean more heavily toward boosting consumption this year, as the relaxation of travel restrictions and services is likely to see a great deal of pent-up demand released in the coming months.

Specifically, Su said fiscal policies this year will likely boost consumption by revving up car purchasing, incentivizing household consumption and boosting the growth of tourism.

"This year, on the fiscal policy front, it is advisable to continue the loan discount policy for NEVs based on the purchase tax exemption policy for NEV purchases. We also look forward to the setting up of a long-term protective mechanism for house renting to rev up consumption in housing," she added.

Fiscal authorities should make tax cuts and subsidies to financial institutions when necessary, to effectively boost consumption in tourism and insurance product purchasing, Su said.

This year, the overall intensity of fiscal policy will be expanded, Liu said. The policy mix of fiscal deficits and discounts on special local government bonds will be optimized and the intensity of fiscal expenditure will be properly increased.

Liu also noted that fiscal policy tools should be brought into better play in supporting both rigid demand for housing and housing improvement and boosting the stable development of the real estate market.

Yang Zhiyong, a researcher with the Chinese Academy of Social Sciences with China's fiscal policy being the major focus of his research, said that last October, the Ministry of Finance introduced a tax incentive that allows residents who buy new homes within one year after selling old homes to enjoy tax refunds for personal income tax on the sale, with the policy effective from October through the end of 2023.

Yang said that based on the highlights mentioned by Liu in his speech about supporting the healthy development of the real estate market, he expects similar tax incentives for home buyers may continue to drive their ability and willingness for housing consumption this year.

Since the Ministry of Finance has recently noted that requirements for projects eligible to use funds released from special local government bonds will be eased, such funds may also be used properly to support real estate growth, Su from CAFS said.