Balancing between sustainable fiscal and economic growth

State investment in public infrastructure is still high, making an investment from the state budget high. Photo by H.Vân.

Public spending remains high

According to the results of the Public Expenditure Review, economic growth is maintained at a high annual rate of 6% between 2006 and 2015, helping to raise the state budget revenue. However, in the period from 2011 to 2015, the rate of increase (after excluding the increase factor) was slower than economic growth. The share of state budget revenues has fallen from 26.4% in the 2006-2010 period to 23.4% in the 2011-2015 period. The main reason was the decrease in revenue from crude oil (from 4.8% to 3%), from import and export (5.5% to 4.2%) and land revenue (2.5% down to 1.7%). Although the pace has slowed down, Vietnam has succeeded in transforming the tax policy system in the direction of less reliance on external sources (revenues from crude oil and import/export). The share of domestic revenues increased from 52.3% (2001-2005) to 58.9% (2006-2010), and 68% (2011-2015). Particularly in 2015, this rate is estimated at 74.2%. The increase was partly offset by the reduction in import and export revenues from crude oil.

In addition, in order to improve competitiveness, attract investment and overcome difficulties for enterprises in the context of economic downturn, Vietnam has implemented a number of preferential tax policies such as tax rate cut CIT; raising family allowances for PIT taxpayers; exemption or reduction of agricultural land tax and extension of payment of VAT, CIT and land use fees.

Together with the revenues, the Government's spending against GDP is expected to remain high. The expenditure structure changes with the current trend of increasing the proportion. Total state budget expenditures (including bond expenditures) averaged 29.2% of GDP in 2011-2015, compared to 28.9% in the previous period and higher than the regional and other nation with equivalent development levels. The comparative ratio between recurrent and investment is around 70:30 in the period 2011-2015 compared to 63:37 in the 2006-2010 period. Frequent increases and surpluses are mainly due to increased spending on new social security policies, salary and allowances, and interest payments on loans. The wage structure increased rapidly, accounting for about 20% of total budget expenditures, mainly due to increases in basic salary and the increase in the number of civil servants, especially in the localities, at a higher rate than the population growth rate. Although international comparisons show that the payroll ratio for civil servants in Vietnam is not too high, the trend of salary increase has been shown to be cautious.

Although the share of total budget expenditure has been reduced, investment expenditure remains relatively high compared to the region and the world. Compared to the total social investment, state budget investment accounted for 29.1% in 2011-2015, slightly up from 28.4% in the period 2006-2010. This shows that public investment in public infrastructure has been maintained in the past, mainly due to the low level of infrastructure in Vietnam.

From this state of affairs, the State budget deficit has increased significantly in comparison with GDP, from 51.7% in 2010 to 61% in 2015, of which government debt accounted for 49.2%, Government debt is 10.9%, local government debt is about 0.9%. Excluding domestic debt and underwriting, government debt is estimated at 43.3% of GDP (2015), close to the regional average and equivalent import. However, the worrying issue is that Vietnam is one of the countries with the highest debt-to-GDP ratio (up about 10% in the past five years), despite impressive economic growth. If the trend continues, Vietnam will face serious concerns about fiscal sustainability.

Reduce staffing to reduce expenditures

In order to ensure fiscal sustainability without affecting economic growth, the Government must make a strong commitment to reduce overspending and to maintain a public debt to a limited extent, thereby helping to limit indebtedness and renewable policy buffering to cope with possible shocks, as well as contingent liabilities that may arise.

According to Mr. Nguyen Minh Tan, Deputy Director of the State Budget Department, Ministry of Finance: In the coming time, tax policies should be further reformed in the direction of boosting domestic revenue mobilization. Specific policies, such as the extension of VAT collection bases, are aimed at applying a single VAT rate and very limited exemptions; To review and adjust the forms of tax preferences in order to properly promote the efficiency of preferential policies, avoid inappropriateness, spread and waste of resources, and at the same time to ensure publicity, transparency and create a more competitive environment among types of enterprises; Increase excise tax rates on some items not encouraged for consumption; To expand the PIT collection base in line with international practices, by adjusting tax rates suitable to taxable incomes and taxpayers; building a unified, modern property tax system; To streamline the collection of resources related to natural resources and environmental protection, to protect and efficiently use natural resources, to promote the exploitation of natural resources in close association with deep processing and environmental protection.

Along with that, Mr. Tan said that it is necessary to improve the efficiency of spending through streamlining, restructuring the public sector and reducing other input costs in key sectors of the economy. Relevant agencies should work better to improve the efficiency of the use of civil servants and civil servants through the development of medium-term recruitment plans to balance the supply and demand of personnel; Increase the autonomy of administrative and non-business units in recruiting and employing labor, building a unified management information system to record and report payroll, payroll and salary sources in both central and local. Improving the efficiency of spending also requires measures in the field of project management and procurement. Procurement reforms in the public sector have made great strides, but mainly in the promulgation of the legal framework, while there is still much work to be done. It is important to note that contractor designation is still a common practice, and in most important and large-scale projects, competitive bidding has shown its superiority.

These solutions will contribute to Vietnam's consolidation of its fiscal steadily and sustainably while continuing its strong economic growth and fair development.