Conflicting views on government expenditure

Higher government spending implies higher government revenue. During the annual session of the National Committee of the Chinese People's Political Consultative Conference, China’s top political advisory body, in March, some members complained that government revenue and expenditure are growing much faster than GDP, placing an ever greater burden on the people.

In 2007 government revenue amounted to 5.1 trillion yuan, a 32.4 percent increase over 2006. For the five years from 2003 to 2007, total state revenue amounted to 17 trillion yuan, compared to 10 trillion over the previous five years. The average annual increase was 22.1 percent.

But Hu Jinglin said, "You cannot simply say the growth of state revenue is too fast or too slow, without a comprehensive analysis."

According to Hu, value-added tax and enterprise income tax are the main sources for government revenue. Changes in the pace of development and structure of the economy mean secondary and tertiary industries are accounting for ever higher proportions of GDP growth. The rapid growth in state revenue reflects the growth of exports and imports, increasing retail sales of consumer goods, speculative investment in real estate, and higher profits made by enterprises.

Hu also pointed out that different accounting systems exaggerated the growth in government revenue. Government revenue growth is conventionally expressed in current prices while GDP growth rate is expressed in constant prices. For example, 2007 GDP was 24.6 trillion yuan representing an increase of 11.4 percent. But if calculated in current prices, the growth rate would appear as 17 percent.

Moreover, improved tax collection methods have contributed to the growth of national revenue.

In macro-economic terms, the growth in government revenue is not a serious problem, said Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance on March 23, during an interview with China Newsweek.