The income from the transfer of state-owned land use right refers to the income obtained by the local government from the transfer of state-owned land use right as the land owner, which is referred to as land transfer income for short. Since the first collection of "land use fee" in Shenzhen in 1982, the scale of land transfer income has gradually increased with the development of urbanization, and has become one of the important sources of income for local governments. In 2021, land transfer revenue accounted for 41.47% of local fiscal revenue (general public budget revenue + government fund revenue), and 26.42% of local fiscal expenditure (general public budget expenditure + government fund expenditure).
From the historical data, the land area purchased by China's real estate industry and the new urban population show roughly the same trend of change. Since 2016, the number of new urban population in China has declined, and the whole society's demand for new construction land will be reduced in the future, and the land transfer area will be significantly reduced. In addition, in the past three years, the average sales price of new commercial housing in China has decreased continuously, and the land transfer price may be difficult to rise again. If the land transfer area decreases and the land transfer price remains unchanged or even goes down, the land transfer income of local governments will face a reduction.
When the income from land transfer accounts for a high proportion of local government revenue and expenditure, if this part of income decreases significantly, it may have an impact on local finance. Assuming that the national per capita local fiscal expenditure is the benchmark of rigid expenditure, comparing the per capita fiscal expenditure of various provinces, it can be seen that if the land transfer income is excluded from the local fiscal revenue, the per capita fiscal expenditure of many provinces will decrease significantly. Among them, Hebei, Shanxi, Liaoning and other provinces are currently facing deficit pressure, and the pressure will be greater after excluding land transfer income. The local finance of Jiangsu, Zhejiang, Fujian and other provinces will change from the current relatively loose to bear the pressure of deficit.
If the income from land transfer drops sharply, local governments can also make up part of the revenue and expenditure gap by increasing liabilities in the short term. However, the debt expansion is unsustainable and cannot make up for the financial gap caused by the reduction of long-term land transfer income. As a substitute for the income from land transfer, the collection scope of personal housing property tax is still very small, and the scale is far lower than the income from land transfer. The income from property tax is not enough to replace the income from land transfer.
On the whole, the local finance of most provinces is still highly dependent on land transfer income. After the reduction of land transfer income, the local finance of these regions will face great deficit pressure, affecting the sustainable development of local finance.
