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Sunday, October 17, 2021

GDP growth, budget collection not abnormal

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According to statistics released by the General Statistics Office (GSO) at the end of June, Vietnam’s gross domestic product (GDP) calculated in accordance with comparative prices was 5.64%. The growth surprised some economists. However, the author of this article did not.

Some experts maintained that during the Covid-19 pandemic, such a growth rate of GDP was weird to a certain extent. However, the author of this article reckons that the announced rate seems to be normal on account of the following reasons.

First, the GDP growth in the first half of 2020 was extremely low, at only 1.8% over the same period of 2019. Moreover, the Covid-19 pandemic situation actually started to become serious in early May, particularly in some industrial parks of Bac Giang and Bac Ninh provinces. That means production of the manufacturing and processing industry of the foreign investment sector still managed a relatively high growth rate in the first six months.

Secondly, Vietnam’s statistical agency computes her GDP using the production method, according to which GDP includes total added value in line with basic prices and product taxes (value-added tax, luxury tax and export/import tax) and excludes subsidies. As per the GSO’s release, GDP calculated in line with comparative prices grew 5.64% and GDP in line with current prices (including price increases) rose 8.26%.

According to information provided by the General Department of Taxation at the July 9 teleconference reviewing taxation in the first six months of 2021, the collection of almost all taxes rose strongly. For instance, VAT collection grew 19.5% year on year while that of luxury tax jumped by 38.6% from the same period of last year.

However, budget collection in the first half of this year entailed collection from both economic activities in the first six months of 2021 and arrears in 2020 in line with Decree 41 on extension of tax payments and land tax.

Consequently, in accordance with the GSO’s statistics, the growth of product taxes from economic activities in the first half of 2021 was about 7.8% according to current prices, and 4.92% according to comparative prices. These figures are reasonable and compatible with the GDP growth according to the current prices and comparative prices.

Thirdly, a detailed look at tallies recorded over the past few years shows that during the first half of 2018, 2019 and 2020, GDP according to the expenditure method (private/household/government final consumption, gross asset accumulation and gap of goods and services export-import) was always higher than GDP calculated using the production method. However, when computed according to comparative prices, GDP viewed from demand was lower than GDP viewed from supply, which shows that GDP deflector seems to be subjective. Is it true that something was “distorted” to have a GDP growth rate higher than it actually was? There was a U-turn in the first half of 2021 in comparison with some previous years when GDP calculated using the expenditure method was smaller than GDP according to the production method. This fact may sow suspicion among some. However, the website of the GSO has indicated that GDP growth according to the production and expenditure methods was relatively different in such years as 2012, 2015, 2018 and 2019.

Fourthly, statistics of good export-import indicate that over 90% of imports to Vietnam are used for production (more than 60% for intermediate costs and 30% for asset accumulation), and less than 10% for final consumption. Considering the export-import price index, the gap between input and output prices in the Vietnamese economy is enormous. Vietnam’s current method of GDP calculation which does not take into account significant changes in input and output prices is no longer appropriate and may lead to considerable errors. Therefore, the GSO should update the Input/Output (IO) or Supply and Use tables in GDP calculation to compute GDP so that it may better help the people and policymakers.

If the IO is updated, the GSO will easily release GDP according to all the three methods (production, expenditure and income)(1). Furthermore, out-of-place errors in expenditure calculation in GDP using different methods can be eliminated.

Vietnam’s GDP and GNI (Gross National Income) are now available in the website of the GSO. However, NDI (National Disposable Income) and saving are not. Ironically enough, the websites of many international organizations—such as ADB, OECD and IMF—do include these indicators. It is certain that these institutions do not compute the indicators themselves, but they are supplied by the Vietnamese side. Of course, creditors’ requests must be satisfied. Those of taxpayers should be, too!

(1) The income method of GDP calculation is not currently in use

By Bui Trinh

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