In response to the challenge of the epidemic, China’s finance at all levels should actively move forward, not only to support the rescue of real enterprises, but also to hedge the downward pressure on the economy. Local finance, especially city and county finance, involves the bottom line of “Three Guarantees” at the grass-roots level, and is also related to the operation of the government, the implementation of policies and ensuring the vital interests of the people. The importance is self-evident. In April, the growth rate of national general public budget revenue fell sharply, the fiscal revenue of many cities showed significant negative growth, and the single month “negative revenue” appeared in some regions, which triggered hot discussion in the market.
What are the reasons for the decline of local fiscal revenue? What is the rhythm of this year’s tax rebate? How big are the substantial impacts brought by various factors such as retention tax rebate? What is the future trend of local finance? This article will answer the above questions.
I. how to understand the local financial implementation data in April?
1. Fiscal revenue in most regions decreased significantly year-on-year in April, and even “negative” revenue appeared in some places. In April, the national general public budget revenue decreased by 41.3% according to the natural caliber, of which the local level revenue decreased by 40.4% according to the natural caliber. At the provincial level, the general public budget revenue of Shandong, Jiangsu and Zhejiang decreased by 30.4%, 61% and 38.9% year-on-year. Among the major cities, the general public budget revenue of Nanjing, Suzhou, Shenzhen and Hangzhou decreased by 54.9%, 49.6%, 44.2% and 37% respectively in April. According to the data of districts and counties, the cumulative revenue of general public budget from January to April in Jintan district and Liyang City of Changzhou is lower than that from January to March, which means that there is a “negative revenue” in a single month in April.
2. The decline of fiscal revenue is mainly caused by the account processing method of “retention and tax rebate”, which is the initiative of active fiscal policy to deal with the downward pressure on the economy, and should be treated objectively and rationally. “Tax refund with retention” is a subordinate account of the “China value added tax” income account. It offsets the value-added tax income during bookkeeping. China launched a large-scale tax rebate in April this year. The scale of tax rebate in a single month in April reached 37.5% of the national general public budget revenue in the same period last year and three-thirds of the accumulated tax rebate in the three years from 2019 to 2021, which will inevitably lead to a significant reduction in the general public budget revenue, which is not comparable with that in the same period of previous years.
3. The rebound of the epidemic situation in China is a relatively minor factor. Since March, China’s epidemic has occurred frequently and widely, superimposed with adverse factors such as the decline of real estate, imported inflation and the tightening of monetary policies in Europe and the United States. Economic data such as production, consumption, investment and export have declined, and the recovery process of fiscal revenue has been affected to a certain extent. Excluding the factors of tax rebate, the national general public budget revenue decreased by 4.9% in April. Among them, local income decreased by 5.8%.
II. What is the rhythm and impact of this round of retention tax rebate?
1. The large-scale tax rebate is an important part of China’s combined tax reduction and fee reduction policy package this year, which can help enterprises rescue and solve difficulties, increase cash flow and improve their ability to resist risks. Starting this year, China has implemented a large-scale tax rebate for the stock tax rebate. It is expected that the annual tax rebate will be about 1.5 trillion yuan, accounting for about 60% of the annual tax rebate and reduction scale (about 2.5 trillion yuan).
2. Small and micro enterprises are given priority in the arrangement of retention tax rebate policy. In addition to all kinds of enterprises enjoying the policy from April can refund the incremental tax retention in full on a monthly basis, in terms of stock tax retention, micro enterprises can be refunded at one time from April, small and medium-sized enterprises in specific industries can be refunded at one time from May, and large enterprises in specific industries can be refunded at one time from June. Up to now, small and micro enterprises are the main beneficiaries. Among taxpayers who received tax rebates in April, the number of small and micro enterprises accounted for 96.1% and the amount accounted for 52.3%.
3. In terms of rhythm, from January to April this year, 924.8 billion yuan of tax rebate was completed, and the progress of the whole year has been more than half. We expect that from May, the scale of single month tax rebate is expected to be smaller than that in April. In the first 16 days of May, the country completed the tax rebate of 178.1 billion yuan, and the average daily tax rebate scale is equivalent to 40% in the first half of April and 42% in April. On the one hand, the reason lies in the proactive fiscal policy, which focuses on the rapid handling of retention tax rebate in April. On the other hand, the operation of large and medium-sized enterprises is relatively stable and the sales scale is large, so the input tax not deducted is relatively small.
4. The actual burden of local finance is relatively limited because the central finance undertakes more than 90% of the national tax rebate amount and actively supplements the “loss” of local finance. In the tax reduction formed by the retention, deduction and refund of value-added tax, the central government first undertakes 50%, and then makes up for the poor according to 82% of the local part. The specific distribution is inclined to the central and western regions, county and district finance and small and micro enterprise clusters.
III. what is the future trend of local finance?
After May, the probability of fiscal revenue gradually recovered, but the tight fiscal balance situation will not be changed. For the current financial situation, we should not only see the seriousness, but also see the highlights, not only see the surface data, but also analyze the internal reasons. The impact of the epidemic will not change the medium – and long-term trend of China’s economy, and fiscal revenue will gradually rise in the follow-up. However, the recovery of fiscal revenue is difficult to change the trend of fiscal tight balance. We need to focus on the financial difficulties of some counties and grass-roots units.
On the one hand, the increasing downward pressure on the economy, the implementation of tax reduction and fee reduction policies, and the continued downturn of the land market have put pressure on local fiscal revenue. Throughout the year, April and the quarter are the bottom of the economy, and the economic recovery still needs the full force of policies and their implementation and effectiveness.
On the other hand, the scale of anti epidemic and relief expenditure has increased, and the superimposed finance still needs to achieve multiple objectives such as “Three Guarantees” and stable growth at the grass-roots level. The balance of payments of local governments, especially grass-roots governments, is under great pressure.
Looking forward to the medium and long term, we should dialectically look at the relationship between tax reduction and fee reduction and fiscal revenue, and strive to deal with the three pairs of relationships: short-term and long-term, central and local, and inaccurate scale.
First, tax reduction and fee reduction will have a negative impact on fiscal revenue in the short term, but in the long term, it will be transformed into a force to stimulate the vitality of market subjects. The “subtraction” of government revenue will be used to exchange the “addition” of enterprise benefits and the “multiplication” of market vitality, so as to achieve economic growth and subsequent increase of fiscal revenue.
Second, with tax cuts and fee reductions, local fiscal revenue has slowed down and grass-roots fiscal difficulties have become prominent. The central government should continue to increase transfer payments to local governments, promote the sinking of financial resources to the grass-roots level of cities and counties, and firmly grasp the bottom line of “Three Guarantees”.
Third, while making efforts to expand tax cuts and fee reductions, we should pay attention to precision and focus on the rescue of small, medium-sized and micro enterprises, high-quality development of manufacturing industry and scientific and technological innovation.
Risk tip: the economy is going down faster than expected, and the fiscal revenue and expenditure is going down faster than expected
