China fact of the day

Buried in China’s latest government budget were some numbers that add up to an alarming trend. Tax revenue is dropping.

The decline means that China’s national government has less money to address the country’s serious economic challenges, including a housing market crash and the near bankruptcy of hundreds of local governments…

Tax revenue fell further last year than ever before…Overall tax revenue fell 3.4 percent last year.

…Fitch Ratings calculates that overall revenue for the national and local governments — including taxes and land sales — totaled 29 percent of the economy’s output as recently as 2018. But this year’s budget indicates that overall revenue will be just 21.1 percent of the economy in 2025.

Roughly half of the decline comes from plummeting revenue from land sales, a well-documented problem related to the housing-market crash, but the rest comes from weakness in tax revenue, a new problem.

That adds up to a huge sum of money. If overall revenue had kept up with the economy over the past seven years, the Chinese government would have another $1.5 trillion to spend in 2025.

China announced this month that it would allow its official target for the budget deficit to increase to 4 percent this year, after trying to keep it near 3 percent ever since the global financial crisis in 2009. But analysts say the true deficit is already much larger, because China is quietly counting a lot of long-term borrowing as though it were tax revenue.

Comparing spending only with actual revenue, without the borrowing, the Finance Ministry’s budget shows a deficit equal to almost 9 percent of the economy. In 2018, it was only 3.2 percent…

Income taxes collected from individuals were 7.5 percent below expectations last year, the Finance Ministry said in its budget.

Good thing they still are growing at five percent!  Here is more from Keith Bradsher at the NYT.