From August to September, fiscal revenue fell year-on-year, why did the macro economy rise and fiscal revenue decline?

Executive Summary:

Last year's fiscal revenue had a low base of VAT reduction, and the total fiscal revenue in the first three quarters announced by the Ministry of Finance in September increased by 3.2% year-on-year. Tearing back the veil of cumulative data, we can find that fiscal revenue fell year-on-year for two consecutive months in August-September. The macroeconomic upward trend and the downward trend of fiscal revenue are very obvious. It is hoped that the relevant departments will attach great importance to the trend signal of "macroeconomic upward and fiscal revenue down", and at the same time, government departments should not only reduce expenditure, but also reduce the burden of fiscal expenditure by optimizing functions as soon as possible, reducing institutions and staffing.

First, there was a low base for value-added tax reduction and exemption in fiscal revenue last year, and the total fiscal revenue in the first three quarters announced by the Ministry of Finance in September increased by 3.2% year-on-year

On October 24, the Ministry of Finance announced the fiscal revenue and expenditure for the first three quarters. The Treasury Department of the Ministry of Finance said in the report "Fiscal Revenue and Expenditure in the First Three Quarters of 2023" that the cumulative revenue of the national general public budget in the first three quarters was 16.67 trillion yuan, an increase of 8.9% year-on-year; The budget revenue of the national government fund was 3.87 trillion yuan, down 15.7% year-on-year. Among them, the income from the transfer of state-owned land use rights was 3.09 trillion yuan, down 19.8% year-on-year. 

In the first three quarters, the national general public budget expenditure was 19.79 trillion yuan, a year-on-year increase of 3.9%; The budget expenditure of the national government fund was 6.64 trillion yuan, down 17.3% year-on-year. Among them, the expenditure related to the income from the transfer of state-owned land use rights was 3.55 trillion yuan, down 18.7% year-on-year. 

According to the caliber of full-caliber fiscal revenue and expenditure, the total fiscal revenue (budget revenue + fund income) was 20.54 trillion yuan, a year-on-year increase of 3.2%. Among them, tax revenue was 13.91 trillion yuan, a year-on-year increase of 11.9%, non-tax revenue was 2.76 trillion yuan, a year-on-year decrease of 4.1%, and government fund income was 3.87 trillion yuan, a year-on-year decrease of 15.7%. Total fiscal expenditure (budget expenditure + fund expenditure) was 26.43 trillion yuan, down 2.4% year-on-year. The fiscal deficit was 5.89 trillion yuan, down 17.8% year-on-year. The deficit ratio (deficit/GDP) is 6.5%.

Second, tearing the veil of accumulated data, we can find that fiscal revenue fell year-on-year for two consecutive months in August-September

In fact, the year-on-year increase in fiscal revenue in the first three quarters was mainly due to the VAT reduction measures adopted during the epidemic in the first half of last year, and the revenue was lower than normal. The base effect led to a year-on-year increase of 4.4% in total fiscal revenue in the first half of this year, of which tax revenue increased by 16.5% year-on-year. Therefore, the growth rate of fiscal revenue in the first half of the year is actually not representative of the macroeconomic situation.

In the third quarter of last year, the epidemic eased a little, there were not many tax reductions, and fiscal revenue basically returned to normal, so the growth rate of fiscal revenue in the third quarter of this year began to approach the actual economic growth level. Using the cumulative data released by the Ministry of Finance, we estimate that in the third quarter of 2023, the total national fiscal revenue was 6.27 trillion yuan, down 4.8% year-on-year, of which budget revenue also fell by 0.9% year-on-year.

It is worth noting that on a monthly basis, total fiscal revenue has fallen for two consecutive years year-on-year: an increase of 0.2% in July, a decline of 9.2% in August, and a decline of 6.7% in September. The signs of a sharp year-on-year decline for two months are alarming. Among them, tax revenue increased by 4.5% in July, decreased by 2.2% in August, and increased by 0.9% in September.

This is after the year-on-year decline in total fiscal revenue in the first quarter, and the sharp increase in fiscal revenue in the second quarter due to the low base of last year's VAT reductions, fiscal revenue returned to the downward channel. In the first quarter, total fiscal revenue fell 5% year-on-year in January-February and 3.6% year-on-year in March.

Third, the macroeconomic upward trend and the downward trend of fiscal revenue are very obvious

The GDP in the first three quarters announced by the National Bureau of Statistics was 91.3 trillion yuan, with a year-on-year increase of 5.2% in comparable prices and a year-on-year increase of 4.9% in current prices. The total fiscal revenue announced by the Ministry of Finance and fund revenue was 20.54 trillion yuan, an increase of 3.2% over the same period last year. From this cumulative data, the growth rate of total fiscal revenue is 1.7 percentage points lower than the growth rate of current GDP, and it seems that the difference is not obvious. But 3.2%/4.9%, which is equivalent to 35% lower, which is quite a big gap.

However, from a quarterly perspective, the problem of macroeconomic upward movement and downward fiscal revenue is more serious.

In the first quarter, current GDP increased by 5.5% year-on-year, but total fiscal revenue fell by 3.6% year-on-year; In the second quarter, there are base reasons for last year's tax cuts, which are not comparable; In the third quarter, current GDP increased by 4% year-on-year, but total fiscal revenue fell by 4.8% year-on-year.

If the policy changes in the base caused by last year's tax cuts are adjusted, and then the comparable year-on-year growth rate of total fiscal revenue is recalculated, the problem of macroeconomic upward and fiscal revenue downward will be clearer.

On January 2, 2023, CCTV reported that as of December 15, 2022, the total amount of new tax cuts and fee reductions and tax refunds and deferrals handled by the national tax system in 2022 exceeded 4 trillion yuan. Among them, the VAT retained tax refund that has been refunded to the taxpayer's account reached 2.4 trillion yuan.

According to the Ministry of Finance announced on December 15, 2022 in the article "Fiscal Revenue and Expenditure in the First Three Quarters of 2022", the domestic value-added tax in the first three quarters of 2022 was 3,334.7 billion yuan, an increase of 2% after deducting the factor of tax refund, and a decrease of 33.4% on a natural basis. 

According to this data, the value-added tax after deducting the tax refund factor in the first three quarters of 2022 should be 5,107.1 billion yuan, and the amount of retained tax refund should be 1,772.4 billion yuan.

If the total fiscal revenue in the first three quarters of 2022 is added to the retained tax refund amount of 1,772.4 billion yuan, the total fiscal revenue in the first three quarters of 2023 fell by 5.2% year-on-year, of which tax revenue decreased by 2.1% year-on-year.

This means that in the first three quarters of 2023, current GDP increased by 4.9% year-on-year, but the total fiscal revenue, which includes the amount of tax rebates retained in the base, fell by 5.2% year-on-year.

4. What causes the macroeconomic upward trend and the downward trend in fiscal revenue?

Generally speaking, in the absence of changes in tax rates, changes in fiscal revenue and changes in the macroeconomy should be basically synchronized. In particular, as we all know, with the construction of the Golden Tax Project, tax supervision is becoming more and more stringent, and the increase in tax revenue should theoretically be greater than the economic growth range. However, due to the methodological problems of statistics, there may be a certain degree of distortion in statistical data, resulting in the increase in real tax sources may be smaller than the increase in statistical data.

For example, in the table above, car sales increased by 4.6% and vehicle purchase tax increased by 5%, which is logical to increase in tax sources and taxes.

For example, in the above table, customs statistics show that imports fell by 1.6%, but import value-added tax and consumption tax fell by 7.3%, and tariffs fell by 12.1%. The decline in taxes is much larger than the decline in tax sources. There should be a possibility of distortion in import statistics.

For example, in the above table, personal income tax fell by 0.4%, but the wage income of residents' personal income released by the Bureau of Statistics increased by 6.8% year-on-year. There is a trend difference between the tax and tax source data.

The brave Seizumi, a university professor whom I respect, also showed a trend difference between the results of his salary survey among his graduating students and the 6.8% wage increase published by the Bureau of Statistics.

It is hoped that the relevant departments will attach great importance to the trend signal of "macroeconomic upward and fiscal revenue downward", sort out the twists and turns, and find out the true face of the macroeconomy, so as to facilitate the formulation of effective macroeconomic policies.

At the same time, fiscal revenue has been declining for two months, and government departments should not only live within their means, reduce expenditures, and establish the concept of living a tight life, but also reduce the burden of fiscal expenditure by optimizing functions, reducing institutions, and reducing staffing as soon as possible.

【Author:Xu Saburō】