To accelerate economic growth, the central government has adopted a more proactive fiscal policy, with the deficit ratio raised by 0.2 percent from last year’s 2.8 percent to 3.0 percent, according to the Government Work Report.
The raising of the fiscal deficit-to-GDP ratio from 2.8 percent to 3.0 percent is a clear sign of a more expansionary fiscal policy and expected to have a sizable effect on the growth rebound through a so-called fiscal multiplier.
In 2023, China will increase its active fiscal policy by strengthening the overall planning of fiscal funds, optimizing the combination of fiscal deficit, special debt, discount and other tools, expanding the scale of fiscal expenditure, and maintaining the necessary intensity of expenditure.
China's deficit ratio reached the highest level of 3.7% in 2020, and was lower than 3% in the past three years. According to the budget report, China will arrange 27.513 trillion yuan of general public budget expenditure in 2023, an increase of 5.6%.
Apart from suggesting the GDP growth target for this year, the report also raised its projected deficit-to-GDP ratio to 3 percent and targeted an inflation rate of around 3 percent.
China reported a fiscal deficit of 3.88 trillion yuan, an increase of 510 billion yuan over the previous year.
Zhu Qing, Chief Professor of the Institute of Finance and Taxation of Renmin University of China
The purpose of properly raising the deficit rate is to increase its sources of funds for the general budget which is conducive to expanding the expenditure of the general budget.
Luo Zhiheng, Chief Economist of Yuekai Securities
This year's increase in the overall deficit ratio is in line with the current social and economic development situation. It reflects that our fiscal policy is increasing efficiency. At the same time, raising the deficit ration by 0.2 percentage points is controllable which means that we have neither flooded nor strengthened the stimulus which lays a certain foundation for our future fiscal space and fiscal sustainability.
