(Bloomberg) -- China’s fiscal revenue recovery will likely be soft this year, according to Finance Minister Liu Kun, who warned this week of “outstanding conflicts” between income and spending.

The economy’s expected rebound in 2023 will pave the way for a pickup in fiscal revenue, Liu wrote in an article published Thursday on the Ministry of Finance’s website. Massive tax rebates handed out last year will have also created a low base of comparison with this year’s income figures. 

Still, “the growth rate in fiscal revenue this year won’t be too high,” he wrote in the article, which was also published in the ruling Communist Party’s bimonthly magazine, Qiushi Journal.

Expenditure in key sectors such as technology development must increase, Liu wrote, adding that spending in health care, education and local government operation also has to be ensured. 

“The fiscal income-spending situation remains severe,” he said.

Weak income growth would likely limit the scope authorities have to expand fiscal policy by offering huge tax cuts, as they have done over the past few years. Their ability to aggressively leverage up the government sector to bolster the economy would be curtailed, too. 

While top leaders have vowed to maintain the “necessary intensity” needed for spending this year, some economists expect them to scale back fiscal stimulus.

Those years of tax reductions brought tax income down to 15% of gross domestic product in 2021 from 17% in 2018, Liu wrote in the article. That dropped further to 13.8% last year, according to Bloomberg calculations based on official data, after a record 4.2 trillion yuan ($613 billion) of tax breaks were given.

This year, fiscal spending will rise “moderately,” Liu wrote, adding that the government will target tax incentives toward small firms and troubled sectors. Tax cut policies will be improved “based on the situation on the ground,” he added.

The quota allocated for new special local government bonds will be “reasonable,” Liu said, adding that the scope of investment and the use of that money as project equity would be broadened as needed to boost economic growth. He also called for the containment of hidden debt among local governments, adding that existing debt would continue to be reduced as well. 

President Xi Jinping has picked expanding domestic demand as the government’s top priority for the economy this year, as consumption is widely seen as the country’s key growth driver. Liu said authorities will look at ways to improve the ability of low-income households to spend more, such as focusing on social security systems and creating more jobs.

Local governments will be encouraged to provide subsidies or discounted loans to stimulate more spending on smart-home appliances, Liu said.

--With assistance from Lin Zhu.

©2023 Bloomberg L.P.