China’s 2016 Fiscal Deficit Overshoots Target

(Beijing) — China last year logged a higher fiscal deficit than it had budgeted as actual spending was greater than anticipated, official data showed.

Fiscal revenue last year came in at 15.96 trillion yuan ($2.32 trillion), up 4.5% from 2015, the Finance Ministry said in a statement. The growth was the lowest in 29 years, since a gain of 3.6% in 1987, according to government figures.

Expenditures rose 6.4% to 18.78 trillion yuan, the statement said.

The spending figure was far higher than the 18.07 trillion yuan in the government’s 2016 fiscal budget published in March 2016, while the actual revenue was only slightly bigger than the expected 15.89 trillion yuan in the official plan.

As a result, the fiscal deficit was 2.82 trillion yuan, exceeding the target of 2.18 trillion yuan set by the government in the budget.

About 26% of the difference between the target deficit and the real 2016 deficit was covered by transfers from various funds set aside from previous years, such as the central budget stabilization fund and the central state-owned capital operation budget. The remainder was “probably supported by the use of idle fiscal funds” that had not been used, said analysts with China International Capital Corp. Ltd. (CICC) in a note.

Many analysts are expecting the deficit to increase further this year as Beijing is likely to rely on tax cuts and higher infrastructure investment to drive growth because gains from the property market last year are set to taper off.

Given that the country’s fiscal revenue growth has continued to decline since 2012 while the debt ratio has climbed higher, some analysts have called on Beijing to better regulate borrowing by authorities at various levels; fine-tune the tax reduction policy to make it benefit more firms; and trim competition-impeding government subsidies.

The Finance Ministry blamed the tepid revenue increase last year on cuts in taxes and other fees, such as the conversion of the business tax to a value-added tax, which was aimed at reducing the financial burden on companies and boosting the service industry.

Sluggish economic expansion and higher comparison figures in 2015 also weighed on the government’s income growth last year, it said.

Contact reporter Fran Wang (fangwang@caixin.com)