Vietnamese top leaders (L-R) Do Muoi, former Secretary General of the Central Communist Party, Nguyen Tan Dung, prime minister, Nguyen Minh Triet, president and Nong Duc Manh, General Secretary of the Central Communist Party

The National Assembly (NA) should lower Vietnam’s economic growth target to around 5 percent from the targeted 6.5 percent as the global recession continues to affect the country, a government leader said Wednesday.

He said the global economic downturn has hurt the country’s exports, capital market and tourism sector, adding that the economy had sputtered to its weakest first-quarter growth in a decade.

The economic growth rate was 3.1 percent in the first quarter, down from 7.4 percent in the same period last year.

The government has also proposed that the NA deputies increase the budget overspending target to a maximum of 8 percent of gross domestic product (GDP) from the earlier 4.82 percent.

It also seeks permission from the NA to issue an additional VND20 trillion (US$1.1 billion) worth of government bonds.

Hung said the main targets for this year are to “prevent economic slowdown, maintain a suitable and stable economic growth rate, keep macroeconomic stability, actively combat inflation, ensure social welfare, national defense, security, political stability and social order.”

Preventing the economic downturn would be top priority, Hung reiterated.

To reach these targets, the government has proposed active implementation of stimulus packages to promote economic restructuring, improve the economy’s capacity in terms of infrastructure, production and business, as well as the quality of human resources.

It is imperative that development of all economic sectors, especially small-and medium-sized enterprises, is facilitated, Hung said.

In addition, the government has suggested subsidizing interest rates on short and medium-term loans to accelerate investment, production and business, continuing the equitization of state-owned enterprises and speeding up disbursement of official development assistance (ODA).

The government is also proposing to the National Assembly that trade promotion in both local and foreign markets be strengthened and imports be closely monitored with special attention to technical barriers to ensure compliance with World Trade Organization (WTO) regulations.

The implementation of fiscal and monetary policy in an active, careful and flexible manner instead of the tightening effected earlier, and acceleration of poverty reduction and job generation programs have also been suggested.

“Our economy has started having positive changes [in the first quarter] and showed signs of overcoming the most difficult period,” Hung said.

After several consecutive months of decline, industrial production began to increase in February. In the first quarter, industrial production posted a year-on-year rise of 3.3 percent.

Between January and April, 21,000 firms with a registered capital of VND104.3 trillion ($5.79 billion) were established, the NA heard.

The Minister of Planning and Investment, Vo Hong Phuc, said the economy is expected to rise 3.8-4.2 percent in the second quarter, 5.6-6.5 percent in the third, and 6.8-7.4 percent in the last one.

Phuc said the global economic slowdown has hurt the country’s exports, so the government was proposing that the National Assembly reduce this year’s export target to 3 percent from the earlier 13 percent, and that the consumer price index is revised to below 10 percent from a previous goal of under 15 percent.

New challenges

Ha Van Hien, chairman of the NA Economic Committee, backed the proposal to reduce the economic growth target, suggesting options of 5- 5.5 percent, 5 percent, and 4.5-5 percent.

If some problems in investment and administrative procedures are settled, and the implementation of anti-economic slowdown measures is accelerated, the economy will be able to post stronger growth in the coming months, he said.

However, he conceded an annual growth of 5 percent this year is a great challenge, as the first quarter has seen a growth of only 3.1 percent.

Regarding budget overspending, Hien said some spending, such as capital for government bond issuance, advanced capital sources from the state budget, have not been calculated.

Thus, the estimated budget-overspending rate may be higher than the government’s proposed target of 8 percent of GDP at maximum, he said.

Reducing personal income tax

Minister Phuc said the government has proposed that taxpayers not be required to pay personal income tax for the first half of the year.

Tax exemption will also be granted until next January for capital investments and transfers, including that of securities, copyrights and franchises.

While wage earners are supposed to begin paying tax from July 1, they will be given a tax break of VND200,000 ($11.10).

If the proposals are approved by the National Assembly, state budget revenues are expected to decrease by between VND6.5-6.8 trillion ($361.1- 377.8 million) over the annual target, Phuc said.

According to some opinions from the National Assembly’s Finance and Budget Committee, the personal income tax reduction will have great impact on state budget collection, and cause irrationality in adjusting personal incomes, Hien noted.

A majority of deputies from the committee disagreed with the tax reduction, excluding capital investments and transfers, for the last six months of this year, arguing it would undermine the target of redistributing income for the poor.

In Vietnam, only high-income earners have to pay income tax, and the number of the taxpayers is not high, standing at some 300,000, so the tax reduction for them is not of great social significance, Hien said.

If it is necessary to continue the tax reduction as the economy has not yet recovered, the government should propose the issue to the National Assembly for consideration at its next session later this year, Hien said.

Some deputies agreed with the government’s proposal of an income tax reduction for the last six months but proposed a fixed reduction rate.

Reported by Bao Van