Steps to boost policy sustainability over the medium term, says MOF
China's fiscal measures will focus on balancing economic growth and preventing risks, with an eye on enhancing fiscal sustainability over the medium term, senior officials from the Ministry of Finance said on Wednesday.
Fiscal policy will be enhanced to stabilize economic growth, with a focus on countercyclical adjustments. At the same time, efforts will also be stepped up to improve the midterm management of fiscal plans and the cross-year balancing of fiscal budgets, Ou Wenhan, assistant minister of the Ministry of Finance, said during a news conference.
The ministry will ensure fund injections for significant technology innovation projects and adopt tax incentives to encourage enterprises' investment in basic research. Efforts will be made to support the construction and operation of national laboratories. In addition, the policy will support a pilot project for insurance compensation as part of the efforts to promote innovation, said Ou.
On Wednesday, the Ministry of Finance and the State Taxation Administration said manufacturing enterprises can deduct 100 percent of their expenses on research and development, if the spending is not part of the intangible assets included in the profit and loss for the current period. The deduction will come into effect from Jan 1 this year.
If intangible assets are formed, they shall be amortized by 200 percent of the cost of intangible assets before tax from Jan 1, the statement said, adding that tax policies would look to encourage technology research and innovation.
Aiming to build a modern fiscal and tax system during the 14th Five-Year Plan period (2021-25), the Finance Ministry will undertake more measures including targeted tax and fee cuts, improve the tax system structure, and risk control of government debt.
The government will "actively and steadily" promote the legislation and reform of the real estate tax, said Wang Jianfan, head of the tax policy department at the Ministry of Finance.
"It is necessary to gradually increase the proportion of direct tax, improve the direct tax system with income tax and property tax as the main parts especially for raising the fiscal revenue, stabilizing the macroeconomy and consolidating social stability," said Wang, who also mentioned the need to further improve the individual income tax system.
Assistant Minister Ou highlighted the need to control local government debt risks, improve the allocation mechanism of newly issued bonds, and bond issuances in high-risk regions.
"We will not allow the financing of new projects by raising implicit debt," said Ou, adding that local governments are not allowed to increase contingent liabilities through corporate borrowings. Financial institutions should also not provide any illegal financing to local governments.
The senior official pledged to further regulate the local government financing platforms, by "peeling off" their functions of providing financing resources to local authorities.
By the end of last year, outstanding local government debt reached 25.66 trillion yuan ($3.92 trillion), still under the debt ceiling of 28.81 trillion yuan approved by the nation's top legislature. Total government debt accounted for 45.8 percent of the GDP and the debt risks are well under control, according to the Ministry of Finance.
The fiscal policy should support the establishment and improvement of a personal income and property information system, and support the improvement of the payment and income monitoring system, said Ou. He called for measures to curb monopoly and unfair competition as a means to obtain income, and to create an open and fair environment for standardizing the order of income distribution.