Abstract: The 2024 fiscal budget demonstrates a strong fiscal expansion effort, with the planned broad fiscal deficit (difference between total revenue and expenditure of the general public budget and government-managed fund budget), expenditure increase and its growth rate all significantly higher than the previous year. The funds to offset the broad deficit in 2024 are around 10 trillion yuan, including debt financing and some transferred funds, which is less than the broad deficit (11.1 trillion yuan). This means that local governments need to draw on 1.1 trillion yuan from their "surplus funds," which is significantly larger than in previous years but is not a mission impossible.
Given that the majority of the additional treasury bonds issued in 2023 are likely to be expended in 2024, if the fiscal budget is fully implemented, there will be an increase of 3.8 trillion yuan in broad fiscal expenditure for 2024. This is equivalent to a fiscal stimulus of 1.8 trillion yuan (about 1.5% of GDP) on top of the expenditure increase (2 trillion yuan) required to maintain a neutral fiscal policy, suggesting a substantially proactive fiscal policy.
Nevertheless, given the estimated output gap of about 4 trillion yuan, the 1.8 trillion yuan fiscal stimulus only fills half of the gap. This indicates that fiscal policy still needs to strengthen further, and unleashing growth potential entails coordinated efforts of fiscal policy, monetary policy, and real estate policy.
Furthermore, whether the fiscal expansion tendency reflected in the 2024 fiscal budget can be realized largely depends on whether fiscal revenue can achieve its budget targets. In this process, the key lies in the performance of the real estate market and nominal GDP. Fiscal policy should make more policy options available to avoid passive tightening of fiscal policy if budget revenue falls short of expectations. Attention should also be paid closely to the impact of resolving local debt risks on the fiscal revenue and expenditure of some provinces and cities, to ensure the consistency of various macroeconomic policies.
