Judging from the gloomy economic outlook so far this year, the Ministry of Finance's goal of an 8-percent increase in fiscal revenue seems almost unattainable.

"Fiscal revenue will continue to go down," said Jia Kang, Director of the Institute of Fiscal Science under the Ministry of Finance, at the national fiscal work conference held in the beginning of this year.

But the government is doing whatever it can to reach its 8-percent target of increasing this year's fiscal revenue to 6.6 trillion yuan ($966 billion).

Data released by the Ministry of Finance on March 23 indicate the national fiscal revenue stood at 411 billion yuan ($60 billion) in February, down 1.2 percent compared with the same month last year. It was the fifth straight month of year-on-year decline.

The Ministry of Finance figures also indicate that in the first two months of this year, the country's total fiscal revenue was 1.02 trillion yuan ($150 billion), down 11.4 percent from the same period last year. The revenue consisted of 516.8 billion yuan ($76 billion) and 507 billion yuan ($74 billion) in fiscal income from the Central Government and local governments, respectively, representing a 20-percent and a 0.1-percent decrease from the same period last year.

"The decreasing fiscal income would diminish the target revenue," Jia Kang said. "But it won't affect our investment in expanding domestic consumption, and the $586-billion stimulus package will go full steam ahead."

Tax decrease

On the same day when the Ministry of Finance announced its fiscal income, it also published an article analyzing the reasons for the reduction. It attributed the decline in the first two months to two factors: the economic slowdown, which dampened company profits and led to reduced income taxes, and a proactive fiscal policy and corporate tax structure reform, both of which also resulted in fewer taxes.

After the onset of the global credit crunch, China took a series of measures to cut taxes to ensure steady economic growth. For instance, the government reduced the stamp tax on securities transactions and exempted share purchases from such tax. It also reformed the value-added tax system, lowered corporate tax rates for small enterprises and hi-tech companies, cut the vehicle purchase tax on cars that produced fewer greenhouse gas emissions to 5 percent and increased export tax rebates for certain products. Those favorable tax policies have reduced government tax revenue by about 600 billion yuan ($88 billion).

The operational predicaments of corporations affected by the financial crisis also have cut the government's tax revenue. The Ministry of Finance website says overall national tax revenue dropped 13 percent in the first two months of this year, compared with the same period in 2008. During this time, sales tax revenue fell 5.1 percent, while the corporate tax revenue plunged 21.6 percent year on year.

Government investment continues

Jia Kang said the declining fiscal revenue might weaken China's economic strength in the short term, but it won't affect the government's investment to improve people's livelihoods and expand domestic consumption.

National fiscal income has been increasing steadily in recent years and exceeded 6 trillion yuan ($878 billion) in 2008. This has reinforced the country's fiscal strength and laid a solid foundation for accelerating economic development and improving people's lives.

According to Jia, China's fiscal deficit has been kept at a low level thanks to fiscal revenue from previous years.

To make up for the reduction in income and the growing disparity between revenue and expenditures, the government could expand the fiscal deficit and issue more bonds, he said.

The 2009 central budget plan passed by the National People's Congress on March 13 prescribed a national fiscal expenditure of 7.6 trillion yuan ($1.1 trillion), which will lead to a fiscal deficit of 950 billion yuan ($140 billion) for this year. The deficit proportion will be kept to within 3 percent of the GDP. It is the highest deficit since the founding of the People's Republic of China in 1949. Last year, China's fiscal deficit was a mild 111 billion yuan ($16 billion).