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Prof. Lin Shuanglin: Local Governments Should be Fiscally Sustainable

Jan 18-2023   



The assessment criteria for local governments should include the dimension of debt, said Prof. Lin Shuanglin of the NSD in a media interview. He reiterated the principle of sustainable finance through cautiously setting budget deficit goals. Prof. Lin is also Honorary Director of Peking University China Center for Public Finance.

 

As economic activities return to normal, the economy will improve without the need of excessive stimulation, said Prof. Lin, adding that putting the 2023 budget deficit rate at a bit over 3% is reasonable, a figure higher than that of 2022. He stressed that the size of deficit should be decided by economic performance and needs. In addition, he drew attention to the fact that year-end actual budget deficits have tended to be higher than the goals set in the beginning of the year, for example 3.8% versus 3.2% in 2021, and well over 4% versus 2.8% in 2019. The same would happen in 2022 due to additional outlays to cope with the Omicron variant. Overall, Prof. Lin believed that budget deficit should go countercyclical, appearing in economic recessions and disappearing in high economic growth.

 

The combined debts of the central and local governments have amounted to 47% of GDP; however, it doesn’t tally the hidden debts of local governments. Prof. Lin cautioned against allowing local governments to take on more debts in the name of spurring economic growth. He said that local governments should be assessed on not only economic growth indices but also debt levels. More discretion power could be granted to local governments, which should have clear responsibilities and obligations for their debts.

 

As for personal income tax, Prof. Lin advocated reducing the maximal marginal rate from current 45% to under 40%. In Singapore and the US, the rate is 22% and 37% respectively. Similarly, corporate income tax should be paired down to enhance China’s attractiveness as a foreign direct investment destination. For both individuals and companies, taxes have direct bearing on their efficiency.

Prof. Lin Shuanglin: Local Governments Should be Fiscally Sustainable

Jan 18-2023   



The assessment criteria for local governments should include the dimension of debt, said Prof. Lin Shuanglin of the NSD in a media interview. He reiterated the principle of sustainable finance through cautiously setting budget deficit goals. Prof. Lin is also Honorary Director of Peking University China Center for Public Finance.

 

As economic activities return to normal, the economy will improve without the need of excessive stimulation, said Prof. Lin, adding that putting the 2023 budget deficit rate at a bit over 3% is reasonable, a figure higher than that of 2022. He stressed that the size of deficit should be decided by economic performance and needs. In addition, he drew attention to the fact that year-end actual budget deficits have tended to be higher than the goals set in the beginning of the year, for example 3.8% versus 3.2% in 2021, and well over 4% versus 2.8% in 2019. The same would happen in 2022 due to additional outlays to cope with the Omicron variant. Overall, Prof. Lin believed that budget deficit should go countercyclical, appearing in economic recessions and disappearing in high economic growth.

 

The combined debts of the central and local governments have amounted to 47% of GDP; however, it doesn’t tally the hidden debts of local governments. Prof. Lin cautioned against allowing local governments to take on more debts in the name of spurring economic growth. He said that local governments should be assessed on not only economic growth indices but also debt levels. More discretion power could be granted to local governments, which should have clear responsibilities and obligations for their debts.

 

As for personal income tax, Prof. Lin advocated reducing the maximal marginal rate from current 45% to under 40%. In Singapore and the US, the rate is 22% and 37% respectively. Similarly, corporate income tax should be paired down to enhance China’s attractiveness as a foreign direct investment destination. For both individuals and companies, taxes have direct bearing on their efficiency.