Liu Shangxi: Hedging public risks with fiscal risks

  China News Weekly Reporter / He Bin

  Published in the 2020.6.01 total issue 949 "China News Weekly"

  The government work report made arrangements and arrangements for this year ’s macro policy. In terms of fiscal policy, the fiscal deficit reached 3.76 trillion yuan, an increase of 1 trillion yuan, the issuance of 1 trillion yuan of special anti-epidemic bonds, and the arrangement of local government special bonds 3.75 trillion yuan, while the expected scale of tax and fee reductions reached 2.5 trillion yuan.

  "In the case of a decline in the fiscal revenue budget this year, government bond financing and further tax and fee reductions, the total national budget expansion reached 14 trillion yuan, regardless of its size and strength, it is unprecedented." May 24, In an exclusive interview with China News Weekly, Liu Shangxi, member of the National Committee of the Chinese People's Political Consultative Conference and director of the China Academy of Fiscal Sciences, believes that instead of looking at expenditures in a decentralized manner, it is necessary to integrate them. Embody.

Total expansion exceeds 14 trillion yuan

China News Weekly: In your opinion, what are the highlights of the government work report this year?

  Liu Shangxi: I think the biggest bright spot is that in this year ’s government work report, no specific economic growth indicators were set. But this is not to say that there is no such target. In fact, the nominal growth rate of the economy is 5.4% from the deficit rate. In fact, the current economic growth goal has been built into the employment goal. If the employment goal is achieved, the growth goal will naturally be achieved. Of course, the actual growth rate cannot reach 5.4%, and the GDP deflator index must be deducted. The actual GDP growth rate is about 2%.

  This major change in the way the policy is implemented may become the norm in the future. Especially after turning to high-quality development, this adjustment can further get rid of the inertia of writing about economic growth and truly turn to writing about high-quality development.

  But this does not mean that the economic growth rate is not required, but that a certain economic growth rate should be achieved by pursuing high-quality development. The implementation mechanism of the policy has changed, and corresponding adjustments have been made in the setting of policy objectives, which have a considerable impact on the behavior of local governments. I think this is a highlight of the government work report and is also a performance of keeping pace with the times.

China News Weekly: In the government work report, how to reflect the policy tone of "active fiscal policy should be more active and promising"?

  Liu Shangxi: To understand "positive and promising", it may be possible to look at the data in the government work report, but it is still not very clear, but also to look at it in conjunction with the budget report.

  First, reflected in this year's budget arrangement, income is negative growth and expenditure is positive growth. In fact, the difference between income and expenditure reached 6.76 trillion yuan. This is an unusual budget arrangement. In the case of negative income growth, maintaining a certain degree of policy intensity is actually an important sign and performance of fiscal policy's positive and promising.

  Second, the scale of tax and fee reductions is expected to be 2.5 trillion yuan, exceeding the expected scale of 2 trillion yuan last year and the actual scale of 2.36 trillion yuan, reaching a record high and considerable intensity.

  Third, the total amount of funds for expansion reached 14 trillion yuan, of which the government revenue and expenditure balance was 6.76 trillion yuan (recovered by bonds and transferred funds), the special national debt for anti-epidemic 1 trillion yuan, and the local special debt 3.75 trillion yuan ; Tax cuts and fees are reduced by 2.5 trillion yuan, which is tax-type expenditure and real money. Adding them all up, the total amount of funds used by the government to hedge risks from revenue and expenditure in 2020 will reach 14.01 trillion yuan, with unprecedented strength and scale. Previously, without analysis, everyone might have looked at it piece by piece, and it was difficult to form an overall concept and impression. In fact, it should be integrated to look at and fully reflect "positive and promising".

  Fourth, the structure of fiscal expenditures has been greatly adjusted, and the central government ’s expenditures at this level have grown negatively. This arrangement is also unprecedented, and the new 1 trillion deficit and 1 trillion special anti-epidemic government bonds are all transferred by special The payment method goes directly to the cities and counties, increasing the financial capacity of the cities and counties can also counteract the negative impact of the impact of the epidemic.

 China News Weekly: 2 trillion yuan is sent directly to cities and counties through special transfer payments. How can we ensure that the funds are used properly when the financial resources at the grassroots level are tight?

  Liu Shangxi: This involves the local financial system, and the fiscal responsibility system of the jurisdiction should be established. If there is no financial responsibility of the jurisdiction, it is difficult for the funds directly from the central government to the cities and counties to solve the problem. The direct transfer payment from the central government to cities and counties and the transfer payment from the province to cities and counties must be combined. Otherwise, it may be that the central government is sinking financial resources on the other side, and the provincial fiscal revenue is on the other side, or it should not be given The two phases are offset.

  So where is the responsibility of the fiscal jurisdiction? The focus of the current fiscal system is on the level of finance, the provincial level governs the provincial level, the municipality manages the city level, and the county manages the county level. In terms of the responsibility of the jurisdiction, it cannot be just the level of finance, but also the jurisdiction. How is the next level of finance going, forming layers of jurisdictional responsibilities, for example, provincial finances have jurisdictional responsibilities within the provincial scope, and municipal finances have horizontal and vertical financial status for each district and county within the municipal scope. The fiscal balance also has the responsibility of the jurisdiction, and the county finance should naturally also have the responsibility of the jurisdiction.

  If each level has the responsibility of the jurisdiction, it is the same as the Russian matryoshka. The big sets are small, and the layers are set, and the responsibilities are in place. In this way, the financial resources transferred by the central government can be truly put into place on the basis of the financial responsibility of such jurisdictions.

  Moreover, the responsibilities of the jurisdiction have been increased. On the one hand, the central government will sink financial resources to the cities and counties; on the other hand, the provinces should also sink financial resources.

  Of course, it is not enough to solve the financial difficulties at the grassroots level because sinking financial resources is not enough, because the financial difficulties at the grassroots level come from two aspects: financial resources and expenditure responsibilities formed by the authority. Simply sinking financial resources may not really solve the problem. Some expenditure responsibilities and powers should also be moved upwards, and some powers should be moved to the central government. For example, some environmental protection matters should be handled more by the central government. Some responsibilities should be moved up to the province or city. China's development has entered a new stage, that is, a stage of high-quality development. The overall characteristics of development have become stronger and stronger. The higher-level government should assume more responsibility and expenditure responsibilities, which is conducive to regional coordination. Development and optimization of economic spatial patterns.

  This problem is becoming more and more prominent now, because the spillover between regions, such as between counties and counties, between cities and cities, and between provinces, has become larger and larger with the transformation and upgrading of development. For example, if rivers are polluted, upstream and downstream pass through multiple provinces and cities. If the provinces cannot coordinate, the central government will have to leave. Problems such as spillovers involving jurisdictions and issues that overflow the county area must be done in the city. Things that overflow the city area must be done in the province. Things that overflow the province area must be done by the central government.

  With more and more such spillovers, on the one hand, we must consider moving down the financial resources, on the other hand, we must also reduce the burden on the localities, reduce the burden of expenditure, and reduce the power. The reason for the so-called financial difficulties is that there are too many things to do and not enough money. If some things are not done well, they ca n’t be done or ca n’t be done, they will be moved to a higher-level government. The situation has improved.

  Therefore, we must consider both the income side and the expenditure side. It should be a two-way effort, not just one side. Otherwise, even if a large amount of money is sunk to cities and counties, it may cause the situation of small horse-drawn carts. In this sense, finding a way from the expenditure side to appropriately increase the expenditure responsibility or authority of the expenditure can actually increase the macro benefit of the use of funds. If there is a problem with the macro allocation of fiscal funds, no matter how good the performance is on micro projects, it cannot be compensated for.

To prevent crowding out of market funds

 China News Weekly: At present, many local government debts are facing repayment, and another 8.51 trillion yuan of government debt is issued this year. Is the government debt ratio within a controllable range?

  Liu Shangxi: The risk of government debt depends on whether the economy improves. The denominator of the government debt ratio is the economic scale, which depends on the growth of GDP. The numerator is the scale of the debt balance, and the two are interrelated. The scale of the debt and the scale of the economy may form a virtuous circle under a certain mechanism. At this time, the ratio will decline, and the government debt ratio will also decline, so the risk will also be reduced. But if there is a problem with this mechanism, government debt has not promoted economic recovery, and even the size of the economy is still shrinking. At this time, the debt ratio has risen, and the risk of government debt has risen.

  So in terms of the relationship between the numerator and the denominator, if a benign cycle is formed, the risk will be reduced; if no benign cycle is formed, the risk will be expanded. Considering the size of the debt in isolation, it is meaningless to say that the risks are controllable and uncontrollable.

  Therefore, we must use debt as a means to hedge risks and create conditions for economic and social recovery. If this condition can be effectively created to promote economic and social recovery, then the debt risk will be reduced, otherwise, the debt risk will expand.

China News Weekly: At present, the public risks brought by the financial risk hedging epidemic situation are hedged. In the process of policy selection, how should we grasp the "degree" of risks?

  Liu Shangxi: Any policy is risky. The formulation of policies or the choice of policies is actually a result of risk balancing.

  The new coronary pneumonia epidemic has brought unprecedented impact and unprecedented public risks. Therefore, to hedge public risks, it is necessary to increase fiscal risks. There is no doubt about this. The finances now have the ability to take certain risks. By moderately expanding fiscal risks, hedging public risks brought about by the epidemic. In short, hedging public risks with fiscal risks should be based on such a basic principle to consider policy options.

  Of course, the fiscal risks have expanded moderately. In fact, we must also consider the impact of fiscal financing on other aspects. Because financial financing is mainly two ways, tax and debt. Debt financing has many uncertainties. When the scale of debt financing reaches a certain level, it will have a crowding out effect on market funds.

  First, there is a crowding-out effect on the total amount. When the total amount of market funds is fixed, the government has taken away some funds in the market through debt financing, so the market can use less funds. The second is the crowding-out effect on prices, that is, interest rates. Because the government issues a large amount of government bonds and local government bonds, it actually increases the supply of bonds. If the market is normal, the expansion of demand will raise interest rates and even raise the benchmark interest rate, which may cause the financing costs of enterprises to rise. This is a basic Reason. If there is a crowding-out effect through prices and interest rates, this is contrary to the central government's requirements, because the government work report specifically stated that it is determined to lower interest rates and reduce the financing costs of enterprises.

  Therefore, when issuing government bonds, including the central government bonds and local general bonds and special bonds, we must fully consider the impact on the market, not only whether the bonds can be issued, whether anyone wants, but also fully consider the squeeze out effect.

  If this kind of crowding-out effect is predicted, the cooperation of the central bank will be needed to hedge this effect through RRR cuts, refinancing, or other means. From the perspective of the total amount, it is equivalent to the central bank expanding the money supply to support the issuance of government bonds. This is an indirect way of monetizing deficits. Of course, it can also be monetized by a moderate deficit. For example, special government bonds can be purchased by commercial banks and then purchased by the central bank, so as to minimize the negative impact on the current capital market.

  There is an inherent natural connection between finance and finance, which used to be described as "crotch pants". When the scale of fiscal financing reaches a certain level, to avoid this crowding-out effect, the central bank's monetary policy is needed to cooperate. If this kind of coordination is lacking, and each will act independently, the effect of fiscal policy will be greatly reduced, and even counterproductive.

Regardless of financial means and financial means, they should stand on the national standpoint

China News Weekly: The previous discussion on the monetization of the deficit was very fierce. Many people worried that it would lead to inflation, and they were even more worried that once this case was opened, it would be difficult to withdraw in the future. What do you think?

  Liu Shangxi: The withdrawal mechanism is governed by law. Regardless of whether the concept of monetization is used, the monetization of deficits is not without reality. Under the constraints of capital market capacity, the larger the scale of the government deficit, the closer it is to the essence of monetization. The form is superficial and meaningless.

  The focus of the debate now is not whether the law does not open the mouth, or whether it will lead to hyperinflation, but who is the executive body of the monetization of the deficit. The conditions of reality have changed. Do n’t move the example of the Kuomintang period in history to the present. That is the thinking of seeking for the sword and cannot explain today ’s reality.

  The current question, placed under the current institutional framework of China, is actually the question of who will do the monetization of the deficit. The subject is of course the government, but who is the “executive subject”? This is related to the achievements of the department. Is it included in the budget through fiscal policy, or does it bypass the budget and is implemented through monetary policy? In fact, they can solve the problems that the government wants to solve. However, to do it through finances, you must go through budget disclosure and deliberation by the National People's Congress, and you will be subject to the laws and supervision of the People's Congress.

  Judging from the current situation, the law is a fence, but the fence does not extend into a closed loop. There are still many channels that can bypass the fence, but the capabilities of different subjects are different, some are outside the fence, and some are in the fence. Here, some are on the fence. Financial means should be market-oriented means. If you do non-market-oriented things and bypass the budget, it is actually a kind of deficit monetization, but it is not reflected in the budget and becomes invisible. Of course, the boundary between the government and the market is not clear, but the rules of conduct are essentially different.

  From the standpoint of the country, it is nothing more than a question of financial means and financial means, all of which the state wants to do. If it is said that financial means is not monetization of deficits, and fiscal means is monetization of deficits, this is actually discussing issues based on superficial phenomena. Therefore, to determine whether it is the monetization of the deficit, it is necessary to see from the standpoint of the country, whether it is suitable for financial means or financial means. If things that should be done by financial means are done directly by financial means, the essence of deficit monetization has not changed, only the form. Finance is always “government finance”, and if a bank becomes a “government bank”, it becomes another “money bag” of the government. It is natural for people to understand its impact on national governance.

China News Weekly: Compared with monetary policy, fiscal policy is also responsible for promoting social equity and justice. In your opinion, how does fiscal policy balance efficiency and fairness?

  Liu Shangxi: From the market point of view, efficiency is mainly considered, because the central bank generally does not directly target non-financial market entities, but connects to the real economic market through commercial banks. Of course, efficiency should be the first priority. Promoting social equity and justice is not the responsibility of the central bank.

  Finance is the government ’s point of view, considering both efficiency and fairness. Especially now that the basic people's livelihood is protected, the issue of social equity is considered. While ensuring employment is an economic issue as well as a social issue, we must consider both efficiency and fairness. Therefore, when using financial funds, we should not only look at the efficiency indicators, whether it is beneficial to the economy, but also to see whether the fairness indicators can promote social fairness and justice. This is an important part of the people ’s good life.

  For example, the 14 trillion yuan capital plate of the finance has considered both efficiency and fairness, but it is impossible to make it clear that how much money is considered fairness and how much is efficiency. That is a mechanized thinking in real life Can't do it. For example, it is currently exempting small-scale taxpayers and small, medium, and micro-enterprises from tax reductions and deferring social security. This is both efficient and fair, and the two are combined. It is impossible to compare efficiency with fairness, let alone measure the related expenditures with these two rulers separately, and it will be impossible to allocate funds.

  Regardless of whether it is efficiency-oriented or fair-oriented, allocating and using funds according to these two directions will cause an internal conflict and fall into a trap of binary opposition, which is also not conducive to the implementation of policy operations.

  To transcend the conflict between efficiency and fairness, it is necessary to look at it from the perspective of risk, because the biggest problem at present is risk. As long as the risk is hedged and the uncertainty is reduced, whether it is for enterprises or residents ’lives, Both will be improved, and the conditions for the entire economic and social recovery will be in place, and efficiency and fairness will be included. Therefore, I think that in the future, we should strengthen the risk orientation, consider the current policy measures and the effects of fund use in the risk orientation, and we can jump out of the trap and resolve this internal contradiction.

  China News Weekly Issue 19, 2020

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