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Stimulus spending tests fiscal balance amid crisis

(Xinhua)
Updated: 2009-02-26 22:15

Yang forecast challenging fiscal conditions in 2009, as a long-awaited value-added tax reform came into effect, saving companies 120 billion yuan this year.

"Hefty spending on social services, combined with the massive tax cuts, revealed the government's determination to give something back to the public. Officials understand that social spending is crucial to prop up domestic demand and shift the economy's dependence from exports to consumption," he said.

Workers work on the construction site of the second phase of the Qinghai-Tibet railway from Xining to Golmud in northwest China's Qinghai Province Dec. 24, 2008. [Xinhua]

Bai agreed with that assessment. He said the government had changed its thinking. It would curb investment in heavy industries like steel and petrochemicals and enhance spending on health, education, social security and rural areas, which have a direct bearing on living standards.

Those ideas were definitely reflected in the 4-trillion yuan stimulus plan "where government investment in building airports and toll roads only took up a tiny part, and most of these projects would be financed by bank credit," said Bai.

In contrast, investment in agriculture and rural areas would definitely increase, as the infrastructure was insufficient for current or expected demand, said Jia Kang, an MOF economist.

Experts also urged the government to improve efficiency and tighten oversight to prevent any misuse of funds.

"Although we have enhanced efficiency after a series of reforms, there is still much room to improve, notably in the fight against corruption, vanity projects and redundant projects," said Zhu Qing, a finance professor at China Renmin University.

He said runaway increases in administrative expenses could no longer be tolerated. Such expenses "only took up 5.4 percent of fiscal revenue in 1980, but that jumped to 14 percent in 2006. If all the money was spent on improving people's lives, complaints would cease."

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