China’s tax cuts next year could exceed the equivalent of 1% of gross domestic product (GDP), a central bank adviser said in remarks published yesterday, in a sign policymakers might be considering another round of tax reductions.
Beijing has pledged a more proactive fiscal policy to shore up the world’s second-largest economy, where growth eased to its slowest pace since the global financial crisis as a campaign to tackle debt risks and the trade war with the United States begin to bite.
Next year’s tax cuts and fee reductions are expected to reach the equivalent of, or even surpass, 1% of GDP, Ma Jun, a policy adviser to the People’s Bank of China (PBoC), told financial magazine Caixin.
China’s GDP totalled 82.7tn yuan ($11.93tn) last year.
A tax cut equal to 1% of GDP next year would be at least 827bn yuan.
Ma’s prediction comes on top of the at least 1.3tn yuan of tax reductions estimated by Beijing for this year.
Finance Minister Liu Kun said in September that regulators are studying tax reductions on an even larger scale.
Ma also said in the interview that the cuts next year would likely be greater than the extent of US tax reductions though he did not elaborate on what basis China’s cut would exceed those in the United States.
In December 2017, US President Donald Trump signed a $1.5tn tax bill, slashing the corporate tax rate and giving temporary tax relief to middle-class Americans.
On Saturday, Beijing published a draft version of new rules for tax deductions as part of a major overhaul of the country’s individual income tax law.
The proposals include a deduction against tax of 1,000 yuan a month for interest payments on home mortgages, and 800 to 1,200 yuan a month for rental payments.
The draft also proposed deductions of up to 12,000 yuan per year for a child’s education, and up to 60,000 yuan per year for medical expenses above a base amount.
“With weak sentiment amid escalating China-US trade tensions, slowing economy and a weak market, this kind of boost to sentiment, even though a modest one, is positive,” said economists at Goldman Sachs in a note yesterday, adding that it will change the composition of growth drivers modestly towards consumption.
Nomura wrote in a research note yesterday that the overall reductions announced on Saturday would raise national disposable income by 116bn yuan and national consumption by 81bn yuan.
This could boost consumption growth by 0.22 percentage point and nominal GDP growth by 0.08 percentage point next year, Nomura said.
Ma also sought to address concerns about banks’ reluctance to lend to private firms.
Banks traditionally prefer to lend to state-owned enterprises.
Regulators will ask banks not to discriminate against private firms, and the government will roll out a guarantee fund to support private enterprises, according to Ma.
The country’s private sector accounts for 60% of GDP and offers 80% of urban jobs.
He also expects US-China trade tensions to ease somewhat and that the United States seemed more willing to restart trade negotiations with China.
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