(Yicai) Dec. 12 -- China will continue implementing a more proactive fiscal policy next year, keeping a necessary level of budget deficit and government spending while continuing to help resolve local government debt to support its economy.

China will maintain necessary fiscal deficits, overall debt levels, and expenditure, while standardizing tax incentives and subsidy policies, Xinhua News Agency reported yesterday, citing the country's objectives set out at the Central Economic Work Conference held in Beijing over the past two days. More attention should be given to addressing local fiscal difficulties, and party and government bodies will continue to spend less.

Following the introduction of a "more proactive" fiscal policy for the first time last year, China affirmed this approach will continue into next year at the latest work conference.

The 2026 fiscal deficit ratio will likely remain at or above 4 percent, with new government debt potentially ranging between CNY13 trillion and CNY16 trillion (USD1.84 trillion and USD2.27 trillion), several experts told Yicai. Fiscal spending will likely increase by 4 to 5 percent to over CNY30 trillion, enabling the fiscal policy to play a crucial role in stabilizing growth, expanding domestic demand, and benefiting living standards, they added.

The fiscal deficit ratio -- the government's budget shortfall compared to the size of the economy -- widened to a record high of 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.

Specific figures for China's "fiscal deficit, total debt scale, and total expenditure" will be unveiled during the National People's Congress in March.

The work conference also emphasized the importance of resolving local government financial difficulties and safeguarding the "three guarantees" baseline of ensuring livelihoods, public sector salaries, and essential government operations at the grassroots level. Affected by economic downturn, sluggish property and commodity prices, and tax and fee reductions, local government fiscal imbalances have intensified over recent years, leaving some grassroots governments in financial distress.

China's 15th Five-Year Plan proposal explicitly requires increasing local government discretionary fiscal resources, while appropriately strengthening central government responsibilities and raising its share of fiscal spending, which analysts suggest signals accelerated fiscal and tax reforms ahead.

For example, this year's Government Work Report called for accelerating the shift of certain consumption tax categories from production to wholesale or retail stages and allocating proceeds to local governments, increasing their discretionary fiscal resources. Consumption tax belongs to the central government, but the State Council, China's cabinet, previously said that certain levies collected at the production stage will gradually shift to the wholesale or retail stage, with incremental revenue allocated to local governments to expand revenue sources.

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

Tax incentives and fiscal subsidies will also be further standardized. Multiple value-added tax incentives have been phased out this year, including those for government bond interest income, wind power, and others.

Starting next year, VAT exemptions for contraceptives will be eliminated, and the new energy vehicles from purchase tax will shift from full exemption to a capped reduction of 50 percent.

Editor: Martin Kadiev