(Yicai) Dec. 12 -- China will press ahead with a “more proactive” fiscal policy next year, keeping deficit, debt, and spending levels at what officials deem necessary, and step up efforts to ease fiscal pressures at the local government level, Xinhua News Agency reported, citing decisions made at the nation’s top annual economic policy meeting.

The two-day Central Economic Work Conference, which ended yesterday, confirmed that the authorities will continue to implement a “more proactive” fiscal policy, a decision that was first made at last year’s gathering.

The fiscal deficit ratio -- the government's budget shortfall compared to the size of the economy -- will likely remain at or above 4 percent, and newly issued government debt may be between CNY13 trillion and CNY16 trillion (USD1.84 trillion and USD2.27 trillion), several experts told Yicai. 

Fiscal spending could increase by 4 percent to 5 percent to more than CNY30 trillion, enabling fiscal policy to play a crucial role in steadying economic growth, expanding domestic demand, and benefiting living standards, they added.

The fiscal deficit ratio widened to a record 4 percent this year from 3 percent last year, with the central government issuing almost CNY12 trillion of new debt, up nearly CNY3 trillion from 2024. In addition, general public budget expenditure is expected to climb 4.4 percent to CNY29.7 trillion this year.

Specific figures for the fiscal deficit, total debt level, and total expenditure will be revealed during the National People's Congress in March.

The work conference emphasized the need to address local government fiscal difficulties and safeguard the "three guarantees,” the minimum fiscal obligations that localities must protect under all circumstances, even when facing severe financial stress. They are: basic livelihoods, wage payments, and essential government operations.

Local government fiscal imbalances have worsened in recent years for a number of reasons, including the economic slowdown, a weak property market, and commodity prices, as well as tax cuts and fee reductions, leaving some authorities in financial distress.

For this reason, China's 15th Five-Year Plan proposal explicitly recommends increasing local government discretionary fiscal capacity, while appropriately strengthening central government responsibilities and raising its share of fiscal spending, which analysts believe signals faster fiscal and tax reforms ahead.

For example, this year’s Government Work Report -- one of the most important annual policy documents -- urged speeding up the shift of selected consumption taxes from the production stage to the wholesale or retail level, with the resulting revenue allocated to local governments to bolster their discretionary fiscal resources.

At the moment, consumption tax is a central government levy. But the State Council, China’s cabinet, has said that certain taxes collected at the production stage will gradually shift to the wholesale or retail level, with incremental revenue assigned to local authorities to expand their revenue sources.

The work conference also emphasized strengthening scientific fiscal management and optimizing spending structures. The Ministry of Finance launched two-year pilot programs in various provinces this year, with Shandong, Heilongjiang, Anhui, and others publishing implementation plans, where zero-based budget reforms are gradually breaking rigid spending patterns.

The government also plans to standardize tax incentives and fiscal subsidy policies in 2026, while party and government bodies will keep their belts tightened, Xinhua reported.

Multiple value-added tax breaks have been phased out this year, including those for government bond interest income, wind power, and others. Starting next year, VAT exemption for contraceptives will be discontinued, and buyers of new energy vehicles will have to pay half of the standard auto purchase tax, instead of getting a full exemption.

Editor: Martin Kadiev