Governments should also be well advised to pursue "smarter and more agile" fiscal policies to facilitate change in face of technological transformation, globalization and demographics, Gaspar said. As the credit goes up, "China has rightly been emphasizing the need to ensure financial stability and slow down credit," Gaspar said, adding that the IMF's analysis shows that de-leveraging is progressing "at a good pace" in China.
As China makes its transition to a new growth model prioritizing the quality of growth, fiscal policy should "as much as possible" facilitate this transition and have a long-term view, Vitor Gaspar told Xinhua in a recent interview. In its newly released biannual Fiscal Monitor, the IMF said policy response should be on budget to ensure transparency and avoid risks from excessive leverage incurred by borrowing entities.
Gaspar suggested China enhance fiscal transparency, utilize fiscal policy to foster inclusive growth, and reinforce the financial robustness of sub-national levels of government. In the context of the global financial crisis, China resorted to fiscal stimulus which helped sustain its growth and contributed to the prosperity of the global economy, Gaspar said.
In wake of new challenges to international cooperation, Gaspar said it is crucial that countries avoid resorting to unilateral or bilateral action. Commenting on China's recently announced personal income tax cuts, the IMF said in its Fiscal Monitor that such measures would support consumption temporarily, and should be accompanied by medium-term reforms to broaden the overall tax base, improve the progressivity of the tax system, and introduce a recurrent property tax.
On the expenditure side, the Fiscal Monitor suggested China facilitate macroeconomic re-balancing of the Chinese economy by re-prioritizing spending toward education, healthcare and social security.
A property tax should also be introduced, the fund said. A recurrent property tax, Gaspar said, could give more resources to the sub-national levels of government, which will enable their public finances to be more robust.