context: Fiscal revenues beat targets in 2021, but pessimism regarding the economy is weighing on most economic targets in 2022. The Ministry of Finance has pointed towards increasing tax cuts and fiscal expenditure in 2022 to support the economy, but this will put local government budgets in a bind.
Provinces have been rolling out their fiscal targets for 2022. According to Caixin out of 25 provinces, only two have raised their fiscal revenue targets from 2021's actual revenue. Specifically
- each province's 2022 budget revenue target growth rate is set between 2-10 percent
- Hainan's is set at the highest rate, 10 percent
- Henan (5 percent) and Tibet (6 percent) are the two provinces to raise fiscal revenue targets in 2022 from 2021's actual revenue
- both missed fiscal revenue targets in 2021, with Tibet being the only province (though technically an autonomous region) to see fiscal revenue fall
- Henan's economy was damaged by severe flooding
- base effects are the main driving reason for setting lower targets for several provinces, e.g., Beijing setting fiscal revenue targets lower than GDP growth rate targets
Provinces are pointing to revenue uncertainties combined with a strong need for expenditures keeping budgets in a tight place. Qinghai, a western province heavily reliant on central transfer payments, noted that gaining central funding was becoming more challenging as Beijing continues to standardise fiscal transfer payment policies and increases factor-based and competitive distribution models. Qinghai’s general factors, such as population, economic aggregate, and financial support, are relatively fixed and do not compete well with other provinces. In addition, the space for borrowing is limited, and debt income is expected to decline in 2022.