Tax revenue growth continues to lag behind GDP growth, which is a normal phenomenon. China's strong economic start in the first quarter was supported by more proactive fiscal policies this year. A key indicator of fiscal policy proactiveness is the scale of broad fiscal expenditure, which includes the national general public budget and the national government-managed funds budget. In the first quarter, broad fiscal expenditure reached a new historical high, approaching 10 trillion yuan. According to Ministry of Finance data, broad fiscal revenue in the first quarter was approximately 6.9 trillion yuan, a decrease of 0.1% compared to the same period last year. Broad fiscal expenditure amounted to 9.5 trillion yuan, an increase of 2.7% year-on-year. The broad fiscal expenditure exceeded revenue by approximately 2.6 trillion yuan, an increase of 11.2% compared to the same period last year. Fiscal expenditure in the first quarter was front-loaded, with a continuously optimized structure, providing strong support for people's livelihoods and key sectors. The effectiveness of the proactive fiscal policy was steadily released, offering solid support for high-quality economic development in the first year of the 15th Five-Year Plan period.
The implementation of fiscal policy relies on the support of fiscal revenue. In the first quarter, China's GDP grew by 5%, contributing to stable growth in tax revenue. Ministry of Finance data shows that the national general public budget revenue in the first quarter was approximately 6.2 trillion yuan, an increase of 2.4% year-on-year. The core component, tax revenue, reached about 4.9 trillion yuan, a growth of 2.2%. This tax growth rate is higher than the levels seen in the same period last year (-3.5%) and the full-year figure (0.8%). As a barometer of the economy, the recovery in tax revenue in the first quarter reflects the broader economic recovery in China. However, due to factors such as differences in statistical calibers, tax and fee reductions, and the structure of tax sources, tax revenue growth remains lower than GDP growth, which is considered normal. For instance, GDP growth is calculated at constant prices, while tax revenue is calculated at current prices. Prices, particularly the Producer Price Index (PPI), significantly impact tax revenue; changes in PPI lead to corresponding fluctuations in tax revenue. In March, PPI turned from decline to growth, ending a 41-month consecutive year-on-year decline, which is favorable for boosting tax growth.
Ministry of Finance data indicates that the largest tax category, domestic value-added tax, generated approximately 2.2 trillion yuan in revenue in the first quarter, an increase of 4.9% year-on-year. This was primarily driven by growth in industrial and service sectors and a narrowing decline in PPI. China's goods import and export scale reached a new high in the first quarter, maintaining rapid growth, which directly contributed to double-digit growth in value-added tax and consumption tax on imported goods, as well as tariffs. Another factor driving tax growth in the first quarter was the increased activity in the capital markets. Personal income tax, China's third-largest tax category, saw revenue grow by 10.5% year-on-year in the first quarter. The main factors behind the growth in personal income tax were increases in wages and salaries, as well as gains from equity transfers and dividend income. Additionally, active stock market trading directly led to a 78.1% increase in securities transaction stamp duty in the first quarter.
While there are positive aspects to fiscal revenue growth, there are also concerns. Due to the continued downturn in the property market, taxes related to real estate and revenue from land sales have shown significant declines. Ministry of Finance data reveals that deed tax decreased by 16.2% year-on-year in the first quarter, while land value-added tax fell by 14.9%. Revenue from the sale of state-owned land use rights by local governments, part of the government-managed funds budget, dropped by 24.4% year-on-year. The decline in land sale revenue in the first quarter resulted from a combination of factors, including a "high-frequency, low-volume" land supply rhythm, subdued willingness among developers to acquire land, and a relatively high base from the same period last year. As policies to stabilize the property market continue to take effect and the coordinated mechanism for real estate financing helps resolve developers' debt issues, it is expected that this decline will narrow to single digits. A recent meeting of the Political Bureau of the Central Committee emphasized the need to stabilize the real estate market. Cities such as Shenzhen, Guangzhou, Wuhan, Tianjin, and Suzhou have recently introduced new property market policies, including increases in housing provident fund loan quotas and optimizations of home purchase restrictions, to promote market stability.
Broad fiscal revenue this year remained largely flat compared to the same period last year. To maintain a certain level of fiscal expenditure, government borrowing is essential. According to People's Bank of China data, net government bond financing in the first quarter was 3.54 trillion yuan, a decrease of 330.3 billion yuan year-on-year. However, this level of net financing remains historically high, second only to the first quarter of last year and significantly above levels seen in previous years. Ministry of Finance data shows that 1,159.9 billion yuan in new special bonds were issued nationwide in the first quarter, an increase of 20.8% year-on-year. These funds were primarily used for projects in key areas such as social services, transportation infrastructure, affordable housing, and urban renewal, as well as to supplement government-managed funds and support the clearance of government arrears to enterprises.
Fiscal expenditure has been倾斜 towards people's livelihoods. Ministry of Finance data indicates that national general public budget expenditure in the first quarter was 7.47 trillion yuan, an increase of 2.6%. This expenditure represents 24.9% of the annual budget, the fastest progress in nearly five years. Guided by the principle of "investing more in people" in recent years, fiscal funds have been increasingly directed towards民生 areas. For example, health expenditure within the general public budget grew by 12.1% in the first quarter, linked to the concentrated distribution of child-rearing subsidies and increased subsidies to basic medical insurance funds. Expenditure on social security and employment increased by 9% year-on-year in the first quarter, also significantly higher than the average growth rate. A recent meeting of the Political Bureau called for precise and effective implementation of more proactive fiscal policies, continuously optimizing the structure of fiscal expenditure, and firmly securing the "three guarantees"底线 at the grassroots level—ensuring basic living needs, wages, and operational expenses.
The emphasis on fiscal expenditure in areas such as education, social security and employment, and health in the first quarter essentially aims to strengthen the保障 of basic living standards, reduce households' precautionary savings motives, and thereby effectively stimulate consumer demand. However, relying solely on民生 expenditure to boost consumption has its limitations. It is necessary to simultaneously advance tax system reforms, including accelerating direct tax reforms and shifting the collection point for consumption taxes, to continuously optimize the income distribution structure and enhance the marginal propensity to consume among low and middle-income groups. Ultimately, a long-term mechanism where民生 expenditure and tax reforms协同拉动消费 should be formed.
China's fiscal operations in the first quarter overall showed a positive trend of温和回升 in revenue,持续加力 in expenditure, and不断优化 in structure. However, it is important to recognize that underlying drivers for fiscal revenue growth remain insufficient, and pressures on local fiscal operations are significant, issues that have not yet been fundamentally resolved. To address the fiscal gap caused by the ongoing adjustment in the real estate sector, measures such as increasing central government transfer payments or raising local government debt limits could be considered to restore local governments' capacity and enthusiasm for economic development. In the medium to long term, deepening fiscal and tax system reforms,健全 the local tax system, and appropriately recentralizing some fiscal powers and expenditure responsibilities could help alleviate local expenditure pressures.
The release of fiscal effectiveness in the subsequent period may depend on factors such as government bond issuance, fiscal-monetary coordination, and the progress of fiscal and tax reforms. Starting in April, the issuance of 1.3 trillion yuan in ultra-long-term special government bonds has officially begun, and the full-year issuance of 4.4 trillion yuan in new local government special bonds will also peak. At the same time, enhanced fiscal-financial coordination will strengthen the保障 of rigid民生 needs and increase support for areas like new quality productive forces and green transformation. Reforms such as increasing the handover of state capital profits and adjustments to consumption taxes may further broaden channels for supplementing fiscal resources.
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