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Possible Paths for Fiscal Policy Increments
Amidst stock market adjustments, the market is increasingly anticipating incremental fiscal policies.
The press conference on increasing the counter-cyclical adjustment intensity of fiscal policy, to be held by the State Council Information Office on October 12, and the Standing Committee of the National People's Congress (NPC) meeting in late October, have become important windows to observe the incremental fiscal policies for the fourth quarter of this year.
Looking back at history, it is not difficult to find that when economic growth falls short of expectations, in order to stabilize the macroeconomy, fiscal policy will increase its counter-cyclical adjustment efforts and introduce incremental policies. One focus of these efforts is to increase government spending,加大对 infrastructure construction, livelihoods, scientific and technological innovation, and other fields to stimulate total economic demand.
In the first eight months of this year, the total of general public budget expenditures and government fund expenditures nationwide fell by 2.9% year-on-year. This was mainly affected by the decline in tax revenue and a significant drop in land transfer income. In September, the issuance scale of new special bonds broke through one trillion yuan, setting a new monthly high for the year. The state has deployed to accelerate the use of special treasury bonds and special bond funds, which will undoubtedly help to narrow the decline in broad fiscal expenditures.
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However, due to the significant decline in land transfer income, which is difficult to reverse in the short term, and the continued weakness in tax growth, the real estate market is still striving to stop the decline and rebound. This will inevitably lead to the broad fiscal revenue for this year falling short of expectations at the beginning of the year, constraining fiscal efforts.
Therefore, experts generally suggest increasing the scale of government debt to ensure a certain intensity of fiscal expenditure. Due to the heavy debt burden of local governments, the central government has more room for debt and lower costs, and experts generally suggest issuing more government bonds or special government bonds.
This approach is not uncommon. For example, in October 2023, at the sixth session of the 14th Standing Committee of the NPC, the resolution of the Standing Committee of the National People's Congress on approving the State Council's additional issuance of government bonds and the adjustment plan for the 2023 central budget was passed. The central finance issued an additional 1 trillion yuan of government bonds in the fourth quarter of that year, managed as special government bonds. The national fiscal deficit will increase from 3.88 trillion yuan to 4.88 trillion yuan, and the deficit rate is expected to rise from 3% to about 3.8%. In addition, to cope with the impact of the epidemic, at the two sessions held in late May 2020, the National People's Congress reviewed and passed 1 trillion yuan of special government bonds for epidemic prevention and control.
Since the additional issuance of government bonds or special government bonds requires adjustments to the central fiscal budget, all of these must be reviewed and approved by the Standing Committee of the National People's Congress. Therefore, the Standing Committee of the National People's Congress meeting in late October has become an important window to observe the implementation of incremental fiscal policies.
In addition to expanding fiscal expenditure and increasing government debt, increasing the intensity of tax cuts and fee reductions is also an important policy tool for fiscal efforts. This is aimed at reducing the tax and fee burden on enterprises and individuals, increasing the disposable income of enterprises and residents, and expanding investment and consumption to drive overall demand. For example, in the second half of 2022 and 2023, the country increased the intensity of tax cuts and fee reductions; at the end of August last year, the State Council raised the additional deduction standards for the "one old and one young" three personal income tax deductions.
Therefore, whether there will be new policies in terms of tax cuts and fee reductions in the fourth quarter is also worth paying attention to. However, under the premise of stabilizing the macro tax burden, experts generally believe that there should not be expectations for large-scale new tax cuts and fee reduction policies, and more may be the continuation of some expired tax cuts and fee reduction preferential policies, as well as the possible introduction of policies to support scientific and technological innovation and tax cuts and fee reductions for the manufacturing industry.Zheng Huo, the head of the National Development and Reform Commission, recently stated that by the end of this year, some policies such as tax and fee support, unemployment insurance assistance for enterprise stability and job retention, and skill improvement subsidies will be due to expire. Relevant departments will, based on research and evaluation, expedite the clarification of whether these policies will continue to be implemented. If they are to be continued, the duration of the continuation will be clearly defined as soon as possible. Policies that are conducive to the production, operation, and healthy development of enterprises will not cease or be reduced.
Some experts also suggest that in the fourth quarter, it could be considered to issue 1 trillion yuan in special refinancing bonds to replace existing debt, extend the debt repayment period, and reduce interest burdens. Currently, the remaining quota for special bonds is slightly over 1 trillion yuan.
With the deployment of a new round of fiscal and tax reforms, whether the relevant reforms will be launched first in the fourth quarter of this year is also highly anticipated.
In addition to this, quasi-fiscal policies are also a focus of attention. In 2022, policy and development financial instruments were allocated a total of 739.9 billion yuan to unblock the "bottlenecks" of local project capital. Policy and development banks also saw a significant increase in new loans, with an additional 800 billion yuan of credit quota, focusing on infrastructure fields.
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