State budget expected to see a decrease

Prime Minister Nguyen Xuan Phuc has said that more will have to be spent from the state budget amid the raging COVID-19, leading to a climb in budget deficit worth millions of US dollars. Furthermore, to support feeble production, the government’s pro-business policies will also lead to low state budget revenue.

“Despite a potential budget deficit, we will have to boost the implementation of the fiscal policy to support the monetary policy, in order to further assist local production, enterprises, and labourers,” he stressed.

According to the World Bank, the negative fiscal impact associated to the COVID-19 crisis will likely increase in the next few months in Vietnam due to the combination of two trends. Firstly, on the revenue side, the decline in tax collection was generalised to almost all taxes and accelerated in the second quarter, with the government having collected only 76% of the amount recorded during the same period a year ago. Such a decline was explained by the slowdown in economic activity and the implementation of tax deferral measures that are expected to continue to the end of the year.

“In its effort to alleviate the financial burden on the private sector, the government has further reduced the corporate income tax for small and medium-sized enterprises, which may cost the budget an additional US$1 billion in the remainder of 2020,” said a fresh report on Vietnam’s economy by the World Bank.

Secondly, on the spending side, total state budget expenditure rose by an estimated 9.5% between the first six months of 2019 and 2020. This increase is the combination of COVID-19-related expenses and the greater effort to accelerate the disbursement of the public investment programme. Such effort, which has already led to a 19% increase in disbursed investment between the first half of 2019 and 2020, is expected to be strengthened in the coming months.

COVID-19-related spending was estimated at VND15.3 trillion (US$665.2 million), of which VND4.1 trillion (US$178.2 million) was spent on pandemic protection and prevention (testing, quarantine, devices, and equipment) and VND11.3 trillion (US$491.3 million) was disbursed to support vulnerable people, households, workers, and firms (about 18% of the government’s VND62 trillion (US$2.7 billion) package to support the unemployed and the poor).

The General Statistics Office reported that the total state budget revenue is estimated at VND697.5 trillion (US$30.3 billion) for the January-July 15 period, down 9.2% year-on-year, while total state budget spending reached VND798.6 trillion (US$34.7 billion), up 9.1% year-on-year.

This means a budget deficit of US$4.4 billion in a period when the state coffers enjoy a US$5 billion surplus.

According to the World Bank, the fiscal deficit should temporarily worsen due to the slowdown of the economy and the government’s policy response to the COVID-19 crisis. It should reach about 6% of GDP in 2020 before returning to 4 to 5% levels in subsequent years, when the authorities will be able to return to their commitment of prudent and sustainable fiscal policy. The deterioration should be temporary, as revenue should pick up again when the economy gradually rebounds in the next few years. Stimulus spending should also decline gradually as a result of the expected economic recovery in 2021 and 2022.

The prime minister requested that the Ministry of Finance (MoF) formulate and submit to the government new packages on fiscal support, and solutions to continue extending, deferring, exempting, and reducing taxes for the business community, and to mobilise more resources for spurring on national development and aggregate demand which remains slack now.

“Many nations in the world have consecutively applied giant fiscal packages worth up to US$11 trillion, raising the global budget deficit to 13.9% of GDP, in order to support people and enterprises,” PM Phuc said. “Thus, the MoF must devise flexible fiscal mechanisms, policies, and solutions to support the economy.”

The MoF affirmed is now mulling over more favourable solutions on taxes and fees in favour of business and production, and these will soon be submitted to the government and the National Assembly for approval.

Over the past few months, the government has been deploying some drastic measures to support enterprises. Specifically, the State Bank of Vietnam has been deploying a package worth over VND300 trillion (US$13 billion) for enterprises and households, in the form of debt payment deferral and preferential loans.

The MoF has also implemented a VND180 trillion (US$7.82 billion) package to support these people and enterprises. The government has also been implementing a VND62 trillion (US$2.7 billion) package to support poor and unemployed people.

Source: Nhan Dan Online