China’s fiscal revenue growth slows despite economic recovery

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BEIJING, June 16 (Reuters)China’s fiscal revenue growth slowed in January-May from the first four months, Finance Ministry data showed on Thursday, even as the economy showed signs of recovery.

Tax revenue totaled 8.67 trillion yuan ($1.29 trillion) in the first five months, up 2.9% from a year earlier after excluding value-added tax credit refunds (VAT), but slower than a 5% increase in January-April.

Tax receipts in May alone were down 32.5% from a year earlier, according to Reuters calculations based on official data.

Revenue from public land sales fell for the fourth month by 24.03% in May as property developers became cautious about land purchases.

Fiscal spending reached 9.91 trillion yuan in the first five months, up 5.9 percent from a year earlier, according to data from the Ministry of Finance.

China’s economy showed signs of recovery in May after slumping the previous month, as industrial production unexpectedly rose but consumption was still weak.

The cabinet pledged to increase annual tax cuts, including VAT credit refunds, to 2.64 trillion yuan from 2.5 trillion yuan initially to spur growth.

Tax cuts and spending on mass COVID testing have put pressure on local government tax revenues and expenditures.

Moody’s analysts expect large regional and local government budget deficits in 2022, even taking into account higher central government transfer payments.

“Spending is likely to remain elevated – due to increased health and social security spending to control and mitigate the effects of coronavirus-related disruptions.”

To help ease growing fiscal pressure and debt risks for local governments, China’s cabinet on Monday unveiled measures to improve resource allocation among local governments.

The central government has pledged to increase its transfer payments to local governments to nearly 9.8 trillion yuan this year to help offset any impact on local revenues.

($1 = 6.7118 Chinese yuan renminbi)

(Reporting by Ellen Zhang, Gao Liangping and Kevin Yao; Editing by Raissa Kasolowsky and Bernadette Baum)

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