China lowered its budget deficit ratio to 3.2 percent for 2021 from an estimated 3.7 percent last year, after effectively controlling COVID-19 and the gradual recovery of the economy, according to the government work report released on Friday. No special COVID-19 bonds will be issued. 

 

The cuts in deficit budgets will mostly be made in reduction of non-essential items in government spending, the report said, and financial support for employment, people's living standards and the operations of market entities will be prioritized, the report said.

 

Lian Ping, head of Zhixin Investment Research Institute, told the Global Times that the cut in deficit ratio is due to eased downward pressure on the economy, and the focus will shift to quality development and upgrade in the economic structure.

 

According to Lian, manufacturing and new infrastructure for the high technology sector will be prioritized in this year's financial support.

 

Bonds issued from local governments will also be lower than last year. In 2021, a total of 3.65 trillion yuan ($563.79 billion) will be permitted to be issued in local government special-purpose bonds, lower than last year's 3.75 trillion yuan.

 

According to Finance Minister Liu Kun on Friday, although the deficit budget and allowance for local government bonds are lower than last year, both have significantly grown from 2019, and the move makes sure a "generally stable fiscal policy" while maintaining necessary support for economic recovery.

 

According to Liu, more budgetary funds will be directly allocated to local governments. In 2021, around 2.8 trillion yuan will be allocated to prefecture and county level governments, significantly larger than last year, according to the report.

 

The budget cut will also reserve policy room for future risks, Liu said.

 

The central government will also continue the large-scale tax reduction. The threshold of value added tax (VAT) for small scale taxpayers will be further raised to 150,000 yuan of monthly sales from 100,000 yuan.

 

On the basis of preferential policies already in force last year, the central government will halve the income tax of micro and small enterprises and self-employed individuals with an annual taxable income below one million yuan, according to the report.

 

In 2020, a total of 2.6 trillion yuan was eliminated from public tax, including 1.7 trillion yuan in social insurance, according to the government work report.