China pledged to roll out more effective stimulus despite a widening fiscal gap as COVID-19 hits an already slowing economy, highlighting the challenges the epidemic is imposing as the death toll stacks up and thousands of new cases are reported each day.
The nation would this year further perfect and implement measures to reduce corporate taxes and cut unnecessary government expenses as the virus takes a toll on production, Chinese Minister of Finance Liu Kun (劉昆) wrote yesterday in Qiushi, the Chinese Communist Party’s flagship magazine.
With production yet to regain its full pace in all but a few pockets of the economy, increased stimulus to ensure steady growth could widen the fiscal gap and make policy fine-tuning more complicated.
However, authorities are stressing the need to step up spending and ensure funds to contain the disease, regardless of heightened fiscal pressure, Liu wrote.
There would continue to be “targeted and phased” measures in cutting taxes and expenses to help companies, Liu said.
Policies include reducing or exempting value-added taxes for firms providing essential goods or logistics, and more funds for provincial authorities, he said.
Meanwhile, Hong Kong Financial Secretary Paul Chan (陳茂波) said that the territory is facing “tsunami-like” shocks, and might incur a record budget deficit in the next fiscal year as it counts the costs of the outbreak after months of social unrest.
The effect of the outbreak on the Hong Kong economy is being felt beyond retail, food and beverage and tourism-related industries, Chan said in a blog post.
The short-term economic outlook is “cautious,” and shocks could cause the unemployment rate to “deteriorate rapidly,” Chan said.
“In addition to launching counter-cyclical relief measures to support the economy, the government’s recurrent expenditure in the past 10 years has continued to increase significantly, and the weakening economy has significantly reduced government revenue from tax and land,” Chan wrote, elaborating on the deficit.
The budget shortfall would likely continue for a period, he said.
Separately, Singapore is set to deliver a strong budget this week to offset the damage to the economy from COVID-19, with analysts predicting the biggest deficit in almost two decades.
The fiscal gap might widen to 1.5 percent of GDP in the year beginning April 1, the highest since the 1.7 percent shortfall recorded in the 2001 financial year, the median estimate in a Bloomberg survey of economists showed.
This year’s deficit is likely to come in at 0.3 percent, compared with the government’s earlier projection of 0.7 percent.
Singapore was already planning support for businesses hit by the US-China trade dispute when the virus broke out.
The city-state, which has more than 60 cases of COVID-19, is losing as many as 20,000 tourists a day amid travel curbs.
The economic impact is already more severe than during the 2003 SARS pandemic, Singaporean Prime Minister Lee Hsien Loong (李顯龍) was cited as saying on Friday.
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