Government demands higher budget deficit cap

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Workers pave asphalt concrete in a project to expand the National Road No. 51 / FILE PHOTO

The government has urged the National Assembly to increase the budget deficit ceiling from 4.8 percent of gross domestic product this year to 5.3 percent next year, saying it needs money for public spending.

It made the proposal at a meeting organized by the NA's Economic Commission last Saturday, and lawmakers are expected to vote on it this month.

The Ministry of Finance estimates public spending to be at VND196 trillion (US$9.26 billion) this year, but this is not enough to achieve even a GDP growth target of 5.2 percent.

So, next year, when the target is raised to 5.5 percent, the allocation needs to be raised to around VND224 trillion ($10.6 billion), it said.

Meanwhile, the government is set to lose VND59 trillion ($2.79 billion) in tax revenues this year due to recent income and corporate tax breaks, it said.

The government's proposal has thus raised questions about how it will be able to mobilize the money besides concerns about increased public debt and inflation.

Ngo Van Minh, member of the NA's Law Commission, said he was "extremely worried."

"It is a fact that whenever the budget deficit increased, inflation would go up," he added.

One of the main sources of funds proposed by the government is issuance of bonds.

According to the Ministry of Planning and Investment, the government can issue VND360 trillion ($17 billion) worth bonds in 2014-16 without exceeding the public debt ceiling set at 65 percent of GDP.

It plans to take up the slack by issuing additional bonds worth VND285 trillion ($13.5 billion) after already getting approval from the NA for issuing VND75 trillion ($3.5 billion) worth bonds in 2014-15, the ministry said.

But demand for government bonds has been falling, from VND17-18 trillion ($803 million-$850 million) a month at the beginning of this year to VND8-9 trillion since July.

Speaking to Vietweek in August economist Bui Kien Thanh warned that the issuance of more bonds would increase public debt.

British magazine The Economist estimated that Vietnam's public debt now is 48.6 percent of GDP.

Cao Sy Kiem, chairman of the Vietnam Association for Small- and Medium Enterprises, also expressed worry, saying if the budget deficit cap is increased, and more money goes towards current expenditure instead of public investment, the increase would not boost GDP growth as expected.

Worse, it would abet inflation, he said.

Dang Van Thanh, chairman of the Vietnam Association of Accountants and Auditors, said there is no need to increase the budget deficit ceiling.

He urged the government instead to review all investment projects for priority and make "the best use" of the semi-secret funds that the central and local governments are allowed to establish for emergencies.

He estimated that more than 70 such funds were established in the last decade, including some that have trillions of dong.

"There are ways to make good use of these funds, especially when we lack funds; we do not need to borrow."

Speaking to Vietweek, Kien Thanh also said it is not advisable to raise the budget deficit cap when the economy is in trouble and the government cannot collect more taxes to improve its income.

What the government needs to do is to help businesses operate instead of dying out like they are now, he said.

Once businesses do well, they would create jobs, and "naturally" people with incomes would consume, he added.

"That is how the economy is stimulated, not through an increase in government spending, especially in the difficult economic situation that Vietnam is facing now."

As of mid-September the government had collected VND509.7 trillion ($24 billion) in taxes while its spending topped VND640.37 trillion, according to official data.


Tuoi Tre newspaper Wednesday quoted Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, as saying it is "necessary" to increase the budget deficit limit to push public spending.

The difficult economic situation has "hugely" affected the government's budget revenues, while there is a high demand for investment and development spending, he said.

Since the budget deficit would be caused by loans, the government must spend effectively so that it can repay the debts later.

The government must not waste money on revenue expenditure, he said.

In fact, such expenses must be cut after huge amounts were revealed to have been squandered on purchases of cars, construction of extravagant administrative buildings, and overseas trips, he said.

In the decade since 2003 revenue expenditure has risen seven-fold and capital expenditure by three times, he said.

For a long-term solution, Vietnam needs to encourage private and foreign investment in public works, reduce deficits, and then balance the budget, he said.

The government spokesman, Vu Duc Dam, told a press conference the day after the meeting that the government had taken into consideration every concern before proposing the deficit-cap increase.

The government would ensure the public debt ceiling is not exceeded, he said.

The government has made efforts to seek investment in public works, but it was a "very difficult" task, he said.

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