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reporter wang zhen

the national finance and development laboratory recently released a report saying that due to the impact of industrial transformation and the real estate market, many places have entered a long-term state of tight fiscal balance. the fiscal contradictions of local governments, especially grassroots governments, have gradually become prominent, and fiscal sustainability has gradually deteriorated.

according to statistics from the national finance and development laboratory, in the first half of 2024, the fiscal self-sufficiency rates of 31 provinces and cities have declined to a certain extent compared with 2015, and the fiscal self-sufficiency rates of nearly half of the regions have dropped by more than 10%. among them, the fiscal self-sufficiency rates of half of the regions are lower than the pre-epidemic level, and the fiscal self-sufficiency rates of about one-third of the regions are lower than last year.

the fiscal self-sufficiency rate is the ratio of general public budget revenue to general public budget expenditure. the report pointed out that as the growth rate of fiscal expenditure continues to exceed the growth rate of fiscal revenue, the scope of expenditure that can be supported by local fiscal revenue is getting smaller and smaller. in the first half of 2024, only shanghai will achieve a surplus. the fiscal self-sufficiency rate of 17 regions is less than 50%, mainly in the northeast and central and western regions.

changes in the fiscal self-sufficiency rates of provinces and cities over the first half of 2024 (%)

from the perspective of tax revenue, the fiscal revenue of various provinces and cities also shows obvious procyclical characteristics. in the first half of 2024, the tax contribution of major industries in resource-based regions has significantly decreased. the fiscal revenue of shanxi, inner mongolia, qinghai, and shaanxi has continued to decline, and the revenue growth rate is the lowest among all regions. among them, mainly affected by the decline in the quantity and price of coal mineral resources, the growth rate of fiscal revenue in shanxi province in the first half of the year fell sharply by 10.9% compared with the same period last year. among the 22 provinces that have announced tax data, the tax revenue of 16 provinces and cities has declined, mostly manifested in the decline in value-added tax and corporate profits leading to a decline in corporate income tax.

from the perspective of non-tax revenue, among the 22 provinces that have released relevant data, except for guangxi, yunnan and shaanxi, the non-tax revenue of the remaining 19 provinces and cities has achieved positive growth in the first half of the year, and the growth rate is much higher than that of tax revenue. the growth of non-tax revenue is mainly due to the increased disposal of resources and assets in various places, fines and confiscations from major public security cases and discipline inspection and supervision, etc., but the continued growth of non-tax revenue will damage the local business environment, and the asset stock space is limited, which is obviously unsustainable.

the national finance and development laboratory pointed out that in the context of declining tax revenue and land finance and slowing debt issuance, non-tax revenue has become the only way for local governments to expand independently, and together with transfer payment revenue, it will make up for the fiscal revenue and expenditure gap. after the epidemic, local government non-tax revenue, especially fines and confiscations, has shown a growing trend. in 2023, nearly 80% of regions have a higher proportion of non-tax revenue in fiscal revenue than before the epidemic. in the first half of 2024, non-tax revenue increased by 11.7% year-on-year.

in terms of income structure, local governments are increasingly stretched to the limit in terms of available financial resources. on the one hand, local governments have relatively small disposable financial resources. in 2023, except for beijing, tianjin, shanxi, shanghai, and guangdong, the proportion of tax revenue and non-tax revenue in the comprehensive financial resources of other regions will be less than 50%. it can be seen that most regions are highly dependent on transfer payments and land finance, and are more vulnerable to adjustments in the real estate market. as the real estate market enters the adjustment stage, the sharp decline in land fiscal revenue in various provinces and cities has a greater impact on the fiscal space of local governments. at the same time, tax revenue has fallen sharply during the economic transformation stage, and the fiscal space that local governments can use independently has been greatly narrowed. the rigid growth of local government fiscal expenditures requires even greater financial support for counter-cyclical regulation.

characteristics of fiscal revenue structure of provinces and cities in 2023 (%)

on the other hand, during the economic downturn, the proportion of tax revenue gradually decreased, the proportion of transfer payments continued to increase, and the tax substitution gradually increased. compared with 2019, in 2023, the proportion of tax revenue in the comprehensive financial resources of nearly 80% of provinces and cities declined to varying degrees. except for shanghai and guizhou, the proportion of government fund revenue in all other regions fell sharply. in contrast, the proportion of transfer payment revenue in all regions is increasing. the degree of dependence of the northeast and western regions on central transfer payment revenue has increased rapidly, among which guangxi has the fastest increase, an increase of 13.9 percentage points from 2019. more than half of the central government's transfer payment revenue to local governments is transfer payment for common affairs. local governments need to cooperate with the central government's macro-control policies to use transfer payment funds, and local autonomous and disposable financial resources are relatively low.

finally, rigid expenditures only increase and never decrease, and local government expenditures have serious path dependence and structural rigidification problems. the national finance and development laboratory pointed out that fiscal expenditures have long relied on the base method, and there is no room for expenditure items to decline, so they can only grow passively and rigidly. first, infrastructure spending continues to grow under the demand for stabilizing the economy. in the first half of 2024, the cumulative growth rate of infrastructure spending was 5.0%, while the growth rate of people's livelihood spending was -0.8%, but the marginal investment benefits of traditional infrastructure spending continued to decline, and the effect of boosting the economy may not be obvious.

second, the proportion of people's livelihood expenditures has increased year by year. in the first half of 2024, people's livelihood expenditures accounted for 40.4%, a slight decrease from the same period in 2023, but it is still the main part of local government fiscal expenditures. although the proportion of infrastructure expenditures in fiscal expenditures in the first half of 2024 increased slightly to 22.1%, this is the lowest value in the past 15 years except for 2023. it can be seen that the continuous shift of fiscal expenditures to the field of people's livelihood is an inevitable trend to adapt to economic and social development in the future.

third, debt interest payment expenditure has risen rapidly, and the proportion of debt interest payment expenditure has continued to increase from 3.0% in the first half of 2017 to 4.6% in the first half of 2024. the government's debt pressure has continued to rise, squeezing the part of fiscal expenditure used for economic construction and people's livelihood, thereby weakening the economic effect of fiscal expenditure.

the national finance and development laboratory recommends that in the face of prominent contradictions in local government fiscal revenue and expenditure and problems in operation, it is urgent to promote a new round of fiscal system reform to stimulate local government fiscal enthusiasm and enhance local government fiscal vitality by readjusting central-local relations, debt management, and budget management.

in terms of revenue, by promoting the reform of the existing tax system of consumption tax, value-added tax and income tax, expanding the tax management power of local governments, broadening local government tax sources, standardizing non-tax management, tapping the potential of fiscal reserves, improving the existing transfer payment system, optimizing the local government revenue structure, and enhancing the enthusiasm for regional economic development.

in terms of expenditure, we will increase the centralization of expenditure responsibilities, advance the reform of responsibilities and expenditure between the central and local governments, optimize the expenditure structure of local governments, strengthen fiscal management, establish a transparent and efficient budget management system, and improve the efficiency of local fiscal expenditure.