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Text: Ren Zeping Team

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On July 22, the Ministry of Finance released the fiscal revenue and expenditure data for June. In the first half of the year, the national general public budget revenue was 11,591.3 billion yuan, a year-on-year decrease of 2.8%; the national general public budget expenditure was 13,657.1 billion yuan, a year-on-year increase of 2%.

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1. Characteristics of the fiscal situation in June: Both revenue and expenditure declined, and non-tax revenue increased abnormally

1) The decline in revenue narrowed, and non-tax revenue grew abnormally.Tax revenue in June fell 8.5% year-on-year, a 0.4 percentage point increase from the previous month; non-tax revenue maintained rapid growth.In June, the year-on-year growth rate of non-tax revenue increased to 16.4% from 15.8% in the previous month.

In the first half of the year, the national tax revenue was 9,408.0 billion yuan, a year-on-year decrease of 5.6%; non-tax revenue was 2,183.3 billion yuan, a year-on-year increase of 11.7%. Non-tax revenue accounted for 28.3%, and has been on an upward trend for three consecutive months.

Tax revenue is highly correlated with economic activities. If the tax source enterprises are good, the tax revenue will naturally be good.Non-tax revenue mainly includes fees, fines, etc., and is often used as a means for local governments to actively obtain revenue when tax revenue declines. The abnormally high increase in non-tax revenue has an adverse impact on the business environment.

Pay attention to the impact of the abnormal growth of non-tax revenue on the business environment, and pay attention to the situation of enterprises and residents reflected by the decline in corporate income tax and personal income tax.At the macro level, it is data; at the micro level, it is the joys and sorrows of many families. Development is the hard truth and the top priority.

In the past, when the economy was under pressure, we would reduce taxes and fees, rest and recuperate, and overcome difficulties together. This is common sense in economics and also the experience of countries around the world. Recently, some places have seen a sharp increase in non-tax revenues such as retrospective taxation, fines and confiscations, which should be taken seriously. The fiscal system is under pressure, and so are enterprises. We should not drain the pond to catch fish. Taxes are not collected through investigation, but developed. As long as the economy is prosperous, taxes will naturally appear.

Economic history tells us that, both in ancient and modern times, both in China and abroad, when the economy is developing well, there is always one basic characteristic: releasing water to raise fish, giving the people a rest, reducing the tax burden, respecting common sense, and being pragmatic.

2) Among the four major tax types, only consumption tax is growing, while the other price-related taxes are sluggish.Consumption tax increased by 4.5% year-on-year in June.Corporate income tax, personal income tax and value-added tax were -26.8%, -4.0% and -2.5% year-on-year respectively.The decline in the growth rates of corporate income tax and personal income tax widened, which further dragged down tax revenue; the growth rate of value-added tax turned from positive to negative, which was related to the tail effect of last year's tax reduction policy.

3) The growth rate of expenditure has slowed down, with local fiscal expenditure being a major drag.In June, general public budget expenditures turned negative from 2.6% in May to -3% year-on-year, down 5.6 percentage points. In terms of central and local governments, central government expenditures increased by 7.4% year-on-year, down 1.8 percentage points from 9.2% in May; local government expenditures decreased by -4.4% year-on-year, down 5.7% from 1.5% in May, with a larger decline in local governments. In terms of expenditure items, only debt interest payments, urban and rural communities, and social security and employment expenditures were in the positive range year-on-year, while the rest of the expenditures fell back to the negative range year-on-year, with the largest decline in people's livelihood expenditures.

4) The decline in government fund budget revenue widened, while the decline in expenditure narrowed, with land sales revenue being the main drag. In June, the national government fund budget revenue fell by -32.4% year-on-year.%, which continued to widen from -22.2% in May. Among them, the year-on-year decline in land transfer revenue in June widened to 35.3%, the lowest level since July 2022.

2. Revenue: Tax revenue growth slowed down, non-tax revenue increased rapidly, and the structure was differentiated

The decline in the growth rate of general public budget revenue narrowed.In June, general public budget revenue fell by 2.6% year-on-year, a slightly narrower decline than the -3.2% in May. After deducting the impact of special factors such as the tax deferral for small and micro enterprises in the same period last year, which raised the base, and the tax reduction policy introduced in the middle of last year, which reduced revenue, the general public budget revenue in June grew by -1% year-on-year on a comparable basis.

The decline in tax revenue widened, while the growth rate of non-tax revenue was relatively high.In June, tax revenue increased by 1,361.8 billion yuan, down 8.5% year-on-year, with a larger decline than in May, pushing up the proportion of non-tax revenue; non-tax revenue increased by 538.3 billion yuan, up from 15.8% in May to 16.4%, the highest level since 2023. Non-tax revenue and tax revenue have a seesaw effect. Tax revenue is highly correlated with economic activities. If the tax source enterprises are good, the tax revenue will naturally be good; while non-tax revenue mainly includes fees, fines, etc., which are often used as a hedge against the decline in tax revenue, but in fact affect the business environment.

From the tax item specific point of view:

1) Among the four major taxes, consumption tax has increased tax revenue, while other price-related taxes are sluggish. In June, consumption tax, corporate income tax, personal income tax, and value-added tax were 4.5%, -26.8%, -4.0%, and -2.5% year-on-year, respectively.Among the four major taxes, only consumption tax increased compared with May, while the other three items all decreased year-on-year. Among them, value-added tax decreased the most. In addition to the high base of the same period last year and the tail-end reduction of value-added tax deduction policy for advanced manufacturing enterprises issued in the middle of last year, it was mainly affected by the sluggish price level and weak domestic demand. The decline in corporate income tax reflects the weak profitability of enterprises and poor profit performance. Personal income tax continued to grow negatively. In addition to the tail-end reduction of the policy of raising the standard of special additional deductions for personal income tax issued in the middle of last year, it may be related to the reduction in the number of taxable people and the employment environment. Residents' income still needs to stabilize.

2) The decline in land and real estate-related taxes widened. In June, the combined decline in the five types of land and real estate-related taxes widened, down 2.1% year-on-year, a wider decline than the -0.9% in May.Among them, the deed tax, land value-added tax, property tax, urban land use tax, and farmland occupation tax were -21.1%, -0.3%, 20.1%, 1.7%, and 26.9% year-on-year respectively. Among them, the deed tax dropped the most, down 5.6 percentage points from May. Real estate-related taxes are still a drag, and the deed tax continues to grow sharply, reflecting the current sluggish real estate market and that real estate sales have not yet bottomed out.

3) Other taxes weakened. In June, foreign trade was weak overall, import value showed negative growth, and the growth rates of import-related taxes and export-related taxes turned negative, at -4% and -13.6% year-on-year respectively.In June, the year-on-year decline in stamp duty widened, from -30.3% in May to -52.4%. On the one hand, it was affected by the "halved" transaction stamp duty since August last year, and on the other hand, it reflected the low activity of the securities trading market and the shrinking securities trading volume. In addition, affected by the continued decline in automobile sales, the decline in vehicle purchase tax in June widened, from -22% in May to -29.5%, which was consistent with the performance of automobile retail data.

3. Expenditure: The growth rate of general public budget expenditure has slowed down, while local and people's livelihood expenditure has dropped significantly.

General budget expenditure has declined, but fiscal expenditure still needs to be increased.In June, general public budget expenditure turned from positive to negative year-on-year, down 5.6 percentage points from May. In terms of central and local governments, central government expenditure increased by 7.4% year-on-year, down 1.8 percentage points from 9.2% in May; local government expenditure decreased by -4.4% year-on-year, down 5.7% from 1.5% in May, with a larger decline in local governments. The negative growth rate of general budget expenditure on the expenditure side was affected by the sluggish performance of the revenue side on the one hand, and the slow issuance of local government bonds on the other hand.

In terms of sub-items, only debt interest payments, urban and rural communities, and social security and employment expenditures were in the positive range year-on-year, while the rest of the expenditures fell back to the negative range year-on-year. Specifically:

1) People's livelihood expenditures fell significantly. In June, people's livelihood expenditures fell by 6.7% year-on-year, a significant drop from 0.4% in May.Among them, social security and employment, health and education expenditures related to people's livelihood increased by 2.6%, -21.7% and -5.9% year-on-year respectively; health and education expenditures decreased by 10.8 percentage points and 5 percentage points respectively compared with the previous month, and the growth rate of social security and employment fell by 5.7 percentage points from the previous month. Many local governments issued documents on "living a tight life", reflecting that fiscal expenditures in areas such as stabilizing people's livelihood and stabilizing employment need to be further accelerated.

2) The growth rate of infrastructure spending has slowed down. In June, infrastructure spending was -2% year-on-year, a significant decline from 5.3% in May.Among them, expenditures on energy conservation and environmental protection, agriculture, forestry and water affairs, and transportation were -5.6%, -4.1%, and -3.1% year-on-year, respectively, which were significantly lower than 2.3%, 9%, and 9.5% in May, respectively. On the one hand, the pace of expenditure may be affected by extreme weather such as high temperature and rain; on the other hand, it reflects that the supporting effect of the issuance of additional treasury bonds has weakened. In addition, expenditures on urban and rural community affairs increased by 3% year-on-year, an increase from 0.1% in May. Infrastructure expenditures are a powerful tool for countercyclical regulation, and it is crucial to make efforts in the second half of the year.

3) Debt interest payments remain high. In June, debt interest payments increased by 3.5% year-on-year, down from 8.4% in May.

4. Government fund budget: The decline in revenue widened, while the decline in expenditure narrowed. The sharp decline in land sales revenue was the main reason

Affected by the decline in land transfer income, the decline in government fund budget revenue continued to expand.In June, the national government fund budget revenue fell by -32.4% year-on-year, a further increase from the -22.2% in May. At present, the real estate cycle is still at the bottom, and the revenue from the transfer of state-owned land use rights continues to fall. Among them, the year-on-year decline in land transfer revenue in June widened to 35.3%, the lowest level since July 2022. The sharp decline in land transfer revenue has suppressed the growth of government fund budget revenue.

The decline in government fund budget expenditure has narrowed, but is still in a low range.In June, the national government fund budget expenditure decreased by -11.1% year-on-year, narrowing the decline from -14.2% in May. The issuance of local special bonds in the first half of the year was still slow, failing to support the upward growth of broad fiscal expenditure. As of July this year, 425 billion yuan of ultra-long-term special treasury bonds were issued. In the second half of the year, with the accelerated issuance of special bonds and the continued issuance of special treasury bonds, government fund budget expenditure is expected to be boosted.

5. Outlook: Macroeconomic policies should be more effective

The Third Plenary Session of the 18th CPC Central Committee emphasized the unswerving realization of the annual economic and social development goals. Recent policies have released signals of fiscal and taxation reforms, and a new round of fiscal and taxation reforms led by consumption tax reform is expected to begin.In the second half of the year, with the implementation of tax reform, the fiscal relationship between the central government and local governments is expected to be further straightened out, which will be conducive to increasing local fiscal revenue and easing the constraints of local fiscal revenue shortages on fiscal expenditure.

In the second half of the year, if the economy is to achieve a "maintained 5%" growth, fiscal spending needs to be accelerated, the issuance speed of special bonds needs to be increased, the scope of support for special bonds needs to be reasonably expanded, the issuance of ultra-long-term special government bonds needs to be accelerated, and the issuance scale of special government bonds needs to be expanded when necessary.

In the transition phase between old and new drivers, it is still necessary to maintain a certain economic growth rate and solve problems in the process of development. Fiscal expansion will expand total demand, while increasing support for the new economy and new quality productivity, and monetary policy will cooperate with interest rate cuts and reserve requirement ratio cuts. Increasing the vitality of micro-subjects, increasing employment and residents' income, development is the fundamental solution to all problems.

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