On the Active Fiscal Policy with Chinese Characteristics

The Central Economic Work Conference held at the end of last year proposed that fiscal policy should be more active and effective. This year's "Government Work Report" also emphasized that in 2017, we will continue to implement a proactive fiscal policy and a prudent monetary policy, and fiscal policies must be more active and effective. This is a scientific choice made by the CPC Central Committee and the State Council to comprehensively study and judge the international and domestic economic situation, control the overall situation of economic and social development, and focus on maintaining stable and healthy economic development and social harmony and stability. it is also an important measure to give full play to the basic and important pillar role of finance in national governance and to promote supply-side structural reform. After the outbreak of the international financial crisis in 2008, my country insisted on implementing a proactive fiscal policy and achieved good results. Since the 18th National Congress of the Communist Party of China, under the guidance of the new ideas, new ideas and strategies of the Party Central Committee with Comrade Xi Jinping as the core, my country's proactive fiscal policy has become more scientific and efficient, showing distinctive Chinese characteristics.

Contain the deep meaning of improving the efficiency of governance.

2017 is an important year for the implementation of the 13th Five-Year Plan and the deepening of supply-side structural reforms. The fundamentals of my country's long-term economic development have not changed, market vitality has continued to be released, and new momentum has continued to grow. However, it should also be noted that at present, China is in the critical period of building a moderately prosperous society in an all-round way and the critical stage of building a modern and powerful country. There are more uncertain factors in economic and social development, and there are many hidden risks.

From an international perspective, the haze of the international financial crisis has not yet dissipated. In 2016, the growth rate of the world economy and trade fell to the lowest level in seven years, and the long process of structural adjustment of the world economy has not yet come to an end. At present, a series of international economic, political and social problems, such as the continued downturn of the world economy, the strengthening of trade protectionism, the reversal of economic globalization, the intensification of volatility in the international financial market, the spread of populism, and the increase in geopolitical conflicts, have become prominent, and global risks have significantly expanded.

From a domestic perspective, my country's economic development has entered a new normal, showing three major characteristics: speed change, structural optimization, and power conversion. The endogenous power of economic growth still needs to be strengthened, structural adjustment and power conversion are facing more difficulties, finance, investment, foreign trade, etc. The fields have encountered challenges, and the people still have many dissatisfaction with housing, education, medical care, pensions, food and drug safety, income distribution, etc, it is becoming more difficult to properly deal with various uncertainties and solve the problems of expected instability.

Continuing to implement a proactive fiscal policy meets the requirements of achieving better development under the complex international and domestic economic situation, and is an effective measure to maintain stable and healthy economic development and achieve various set goals. The requirement of "fiscal policy should be more active and effective" contains the profound meaning of improving the efficiency of national governance. It is a vivid embodiment of the new ideas, new ideas and new strategies of the Party Central Committee with Comrade Xi Jinping as the core in the financial field. The so-called "positive" means to actively play the basic and important pillar role of finance in national governance, and enhance the predictability and prevention of fiscal policy, rather than passively coping with it. As a tool of national governance, finance should be more proactive in dealing with various uncertainties at home and abroad, resolve various risks faced by economic and social development, and take precautions, instead of waiting for risks or even crises to occur before they occur. The so-called "effective" means to grasp the key links and key issues, make precise efforts, and prescribe the right medicine to achieve the effect of "four or two dialing a thousand pounds. In the current period of shifting economic growth, fiscal policy should play the role of "stabilizing the sea", continuously inject "certainty" into economic and social development, stabilize the overall situation, promote supply-side structural reform, and ensure the effective implementation of stable growth, reform, structural adjustment, people's livelihood and risk prevention.

The innovation of fiscal policy thinking has been realized.

The "Decision" of the Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China put forward the major thesis that "finance is the foundation and important pillar of national governance", marking that our party's understanding of the laws of fiscal operation and the laws of my country's development has reached a new height, and it has also refreshed us The understanding of the functional positioning of fiscal policy has realized the innovation of fiscal policy thinking.

From focusing on aggregate issues to focusing more on solving structural problems. In macroeconomic textbooks and the popular framework of macroeconomic analysis, fiscal policy is discussed as an aggregate variable, and finance is analyzed in the "troika" of consumption, investment and export, and the main role of active fiscal policy is to expand aggregate social demand. At present, the outstanding contradiction facing our country is the structural problem. Comrade Xi Jinping's judgment on China's economy under the new normal hit the nail on the head: at present, there are cyclical and aggregate problems in China's economic development, but the structural problems are the most prominent, and the main aspect of the contradiction is on the supply side. Therefore, the current proactive fiscal policy implemented in my country focuses on promoting supply-side structural reforms and solving structural imbalances. Compared with monetary policy, fiscal policy is more powerful in adjusting the structure. China's proactive fiscal policy has shifted from focusing on aggregate issues to focusing more on solving structural problems, so it is determined not to engage in "flooding" type of strong stimulus.

From focusing on solving economic problems to comprehensive measures. In the past, the implementation of a proactive fiscal policy basically focused on the macro-economy, either "pulling" the growth rate or "stabilizing" the growth rate. However, economic growth is not the whole story of development. As a tool of national governance, proactive fiscal policy is far from enough to focus on solving economic problems. Moreover, under the new situation of increasingly close economic and social ties, it is difficult to solve economic problems only by focusing on the economy. Proactive fiscal policy can only maintain the "double stability" of the economy and society by expanding its horizons beyond the economy and focusing on comprehensive policies. Comrade Xi Jinping pointed out that "grasping people's livelihood is also grasping development." This is an incisive exposition of the relationship between people's livelihood and development, and it also points out the direction for the implementation of a proactive fiscal policy. Finance increases investment in key areas such as basic people's livelihood security, poverty alleviation, education, culture, health, and ecological civilization, and enhances the ability to guarantee basic public services. In fact, what is improved is the supply side of public services and the implementation of people-centered The embodiment of development thinking. From this point of view, fiscal policy is not only an economic policy, but also a social policy. Through the protection of people's livelihood and the provision of public services, it promotes the improvement of the quality of workers and lays a solid foundation for the implementation of the innovation-driven development strategy; it is also an irreplaceable incentive policy. Tax, funds, subsidies and other policy means produce distribution incentives, market incentives, behavioral incentives and social incentives, it can not only encourage scientific and technological personnel to invent and create enterprises and individuals to innovate and start businesses, but also stimulate local reform and innovation, and stimulate social vitality to achieve both "long stature" and "long spirit" in development ".

Shift from reliance on deficits and debt to optimizing the structure of fiscal revenues and expenditures. In the past, active fiscal policy was often measured by how high the deficit was and how much government debt was. In the case of insufficient aggregate demand, raising the deficit rate and expanding debt can effectively expand aggregate social demand. But to solve structural problems, this idea no longer works. Moreover, if the deficit rate and debt are excessively raised, fiscal risks will also be exacerbated. Structural problems must be solved by structural methods, and fiscal policy space should be expanded through the optimization of fiscal revenue and expenditure structure. It is based on this line of thinking that in 2017, my country's proactive fiscal policy will maintain a deficit rate of 3%. While reducing taxes and fees, the central and local governments will ensure that the intensity of key expenditures will not decrease through reasonable budget arrangements and inventory of funds.

From the bias of macro-control to public risk management. In essence, macro-control is a short-term, emergency public risk intervention of the government, which is an important aspect of public risk management, but not all. Under the new normal of economic development, we should not only resolve public risks in time, but also improve public risk management to prevent the emergence and accumulation of public risks. The current proactive fiscal policy implemented in my country has jumped out of the traditional macro-control thinking. On the basis of fully understanding the characteristics of the new normal of my country's economic development, fiscal policy has been incorporated into the national public risk management system, from focusing on current risk resolution to risk management. While preventing long-term risks and strategic risks, resolve short-term risks.

Improving the effectiveness of policy implementation in the balance between stability and progress

Seeking progress while maintaining stability is the methodology for doing economic work well, as well as the methodology for doing financial work well. The Central Economic Work Conference held at the end of last year pointed out: Stability is the main tone, and stability is the overall situation. Under the premise of stability, we must make progress in key areas and work hard on the premise of grasping the degree. To implement a proactive fiscal policy, it is necessary to improve the effectiveness of policy implementation while maintaining a balance between stability and progress.

Steady overall situation: inject certainty and guide the formation of good social expectations. The important role of fiscal policy is to reduce the uncertainty in economic and social operation, prevent and resolve public risks, and avoid public crises. The injection of certainty is an important manifestation of the proactive fiscal policy's adherence to steady progress. Since the 18th National Congress of the Communist Party of China, my country's proactive fiscal policy has injected certainty into market operations, reduced uncertainty within the real economy, within the virtual economy, and between the real economy and the virtual economy, and stabilized the national economy; injected certainty into social operations, Reduce the uncertainty of consumption, employment and social psychology, protect people's livelihood, and stabilize people's hearts; inject certainty into reforms, in accordance with the "Decision" of the Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China, "a scientific fiscal and taxation system is the institutional guarantee for optimizing resource allocation, maintaining market unity, promoting social equity, and achieving long-term stability in the country", vigorously promote reforms. To stabilize the overall situation, but also to guide the formation of good social expectations. Good social expectations are the cornerstone of stable and healthy economic and social development. With good expectations of the market and social environment, people will have the motivation and patience to engage in innovative and entrepreneurial activities. Pessimistic expectations, on the other hand, lead to the short-term behavior of market participants, who tend to speculate and make quick money. To guide the formation of good social expectations, we must first ensure that fiscal policy signals are clear. The clearer the policy measures and the stronger the implementation, the better the social expectations. Secondly, it is necessary to implement policies accurately. Once policies and measures are introduced, they cannot "turn over the pancakes", and it is not appropriate to make frequent moves to prevent changeable and frequent policies from disturbing expectations. Finally, we must establish the bottom line thinking. Fully consider the various uncertain factors in reality, have plans and bottom lines, and give economic and social entities "reassurance".

To forge ahead: to promote the realization of a new dynamic equilibrium between supply and demand. The root cause of structural imbalance is resource mismatch and inefficiency, resulting in a large amount of ineffective supply and insufficient high-quality supply. Therefore, the role of active fiscal policy is not "flooding", but precise, active and effective. On the one hand, we should actively support the implementation of the policy of "three cuts, one reduction and one subsidy", and strive to do a good job in the diversion, training and resettlement of workers; on the other hand, through the implementation of tax reduction and fee reduction, encouraging R & D and innovation, supporting inclusive finance, supporting small and medium-sized enterprises, and reforming the price formation mechanism of important agricultural products, we should create conditions for the market mechanism to play its self-organizing function and correct structural imbalance. Different from the traditional expansionary policy, the current proactive fiscal policy implemented in my country is not the government's direct efforts to expand demand, but indirectly by stimulating market vitality, optimizing resource allocation, and expanding high-quality supply; it is not a policy to replace the market, but Let the market play a decisive role in the allocation of resources; not a single one, instead, we should understand and grasp the systematic linkage of stabilizing growth, promoting reform, adjusting structure, benefiting people's livelihood and preventing risks, so as to give full play to the overall effectiveness of fiscal policy in these aspects.

In-depth understanding of China's current active fiscal policy needs to break down three misunderstandings.

Myth 1: Active fiscal policy is only a tool for demand management. Many people talk about the current active fiscal policy in China, often put it under the analytical framework of Keynesian theory, and treat active fiscal policy as a tool of demand management. This is a serious misunderstanding. At present, the active fiscal policy implemented in China is obviously not the kind of policy in the framework of Keynesian theory analysis, but a multi-dimensional fiscal policy involving the economy, society and even the governance of the whole country, which can be called "structural policy". The shift from aggregate policies to structural policies is accompanied by a shift from pure economic policies to comprehensive policies. This makes the connotation of active fiscal policy richer and the forms of realization more diversified, such as industrial funds, government and social capital cooperation (PPP) model, revitalizing the stock of funds, breaking the solidification of the expenditure structure, etc., are all used as policy tools. At the same time, my country's current proactive fiscal policy focuses on coordination and coordination with the comprehensive deepening of reforms, and fiscal budget arrangements highlight key points, maintain pressure, and focus on promoting supply-side structural reforms. It can be seen that my country's proactive fiscal policy has greatly surpassed the traditional positioning of demand management tools and has become an important tool for national governance, which is scientific and advanced.

Myth 2: Continued proactive fiscal policy can lead to runaway risks and even fiscal crises. In 2016, China's budget at the beginning of the year arranged a national fiscal deficit of 2.18 trillion yuan, of which the central fiscal deficit was 1.4 trillion yuan and the local fiscal deficit was 780 billion yuan. Taking into account the hidden debt of local governments at all levels, some people believe that my country's current actual deficit ratio and debt ratio are already very high, and the continued implementation of proactive fiscal policies in 2017 will lead to risks out of control. In fact, from the perspective of the 2017 national budget arrangement, the fiscal deficit rate remains unchanged at 3%, and the fiscal deficit is 2.38 trillion billion yuan. This scale is moderate and is by no means a large expansion. In terms of debt, at the end of 2016, the debt balance of China's central and local governments was about 27.33 trillion yuan, and the debt ratio was about 36.7 percent according to the preliminary GDP accounting for 2016 released by the National Bureau of Statistics. Even taking into account contingent liabilities, the combined estimate of our government's debt ratio is about 40 per cent. This is a low level in the world, and it is within our tolerance. Although the local debt level is relatively high, the debt repayment pressure is not light, and some places even have the problems of social security fund payment difficulties and financial pressure, but this is a short-term and local difficulty, not to mention the occurrence of local financial crisis. From the perspective of assets, local debt has formed a large number of high-quality assets. Although it is not an asset that can be realized financially, it has a real effect on promoting local economic development. Today's debt will be exchanged for tomorrow's growth, coupled with a large amount of realizable state-owned asset resources, which is sufficient to deal with any risks that may arise. Of course, this does not mean that there is no need to strengthen risk management. Strengthening local debt management and improving the performance of debt expenditure is one of the contents of the current active fiscal policy.

Myth 3: Enterprises reflect the heavy tax burden, active fiscal policy is not "really positive". Recently, some scholars put forward the "death tax rate", which has aroused widespread public concern. Related to this, some people think that my country's current tax reduction measures are not real tax cuts, and the proactive fiscal policy is not "really positive". This understanding is one-sided. my country has implemented a series of tax reduction measures in recent years, especially in 2016, the pilot program of the VAT reform was fully launched, and the corporate tax burden was reduced by more than 570 billion yuan throughout the year. This is a real "real money" tax reduction. In order to support tax and fee reductions, governments at all levels insist on living a tight life and reducing general spending year by year. However, specific to each enterprise, by the investment cycle, capital composition, profitability and its own business conditions and other factors, the sense of access must be different. If China really has the so-called "death tax rate", why is it that the number of new enterprises every day reaches 15000, countless enterprises have achieved transformation and upgrading, innovative development, and China's economic growth rate is still among the best in the world? Therefore, the term "death tax rate" has no scientific basis. Reducing taxes and fees for enterprises is an important measure for China to implement a proactive fiscal policy. From the perspective of the implementation plan of the proactive fiscal policy in 2017, the policy of reducing taxes and fees will be further implemented to further reduce the burden on enterprises, and the tax burden on enterprises will be reduced by about 350 billion yuan and the fees related to enterprises will be about 200 billion yuan for the whole year, so as to make the main body of the market feel more gained. It should be emphasized that the purpose of reducing taxes and fees is to reduce the burden on enterprises and improve their vitality, not to maintain "zombie enterprises". The survival of the fittest is the law of the market economy.

(The author is President of the Chinese Academy of Fiscal Sciences)

Liu Shangxi
April 06, 2017 Source: People's Network-People's Daily