HCMUT

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY

SCHOOL OF INDUSTRIAL MANAGEMENT

——————– * ———————

MACROECONOMICS PROJECT
VIETNAM’S FISCAL POLICY IN COVID-19

Lecturer: Associate Prof.

Dr Lai Huy Hung

DATE 28.06.2021

Developed by Đặng Trần Thu Ngân 2052181

Phạm Ngọc Thảo Ngân 2053259
Trương Cao Thiện 2053456
Nguyễn Minh Nghiêm 2053262
Trần Lê Như Tuấn 1 2052775
Đoàn Duy Bách 2052862
 TABLE OF CONTENTS

1. BRIEF INTRODUCTION ......................................................................................................... 3

2. BASIC THEORIES ....................................................................................................................... 4

2.1 What is Fiscal policy?
2.3 Categories of Fiscal policy
2.3 What is the Purpose of Fiscal Policy?
2.4 What are the tools of fiscal policy?

3. DESCRIPTION OF EVENT .................................................................................................... 5

4. FISCAL IMPACTS ....................................................................................................................... 7

4.1 Revenue collection is expected to decline
4.2 Public expenditure will rise rapidly

5. DATA COLLECTION ................................................................................................................ 8

5.1 Fiscal measures in 2020
5.2 Fiscal measures in 2021

6. DATA ANALYSIS....................................................................................................................... 10
6.1 Formula of GDP
6.2 Impact of Corona pandemic
6.3 Responses to covid19
6.4 Policies to overcome the impact of the Covid-19 epidemic, in order to recover
and develop the economy
6.5 Multiplier effect
6.6 At first glance the calculation method seems simple and beneficial, but in fact
everything is much more complicated.

7. RESOLVE SOLUTIONS ......................................................................................................... 14

7.1 Overall assessment of the fiscal policy established by the Governments to
response the effect of Covid-19
7.2 Evaluation of the implementation of long-term fiscal policy in Vietnam

8. CONCLUSION ............................................................................................................................. 15

9. REFERENCE ................................................................................................................................ 16

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 1. BRIEF INTRODUCTION

Fiscal policy is one of the most important tools in macroeconomic management of all
countries. In the context that the Vietnamese economy is deeply integrated with the world
economy, it is essential to have synchronized coordination between monetary policy and
fiscal policy to minimize the adverse effects caused by the Covid-19 pandemic to Vietnam.
The report looks at current fiscal policy in some countries in the world in the past time,
then to propose some implications for the application of this policy in Vietnam.

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 2. BASIC THEORIES

2.1 What is Fiscal policy?

- Fiscal policy is the means by which a government adjusts its spending levels and
tax rates to monitor and influence a nation's economy. It is the sister strategy to
monetary policy through which a central bank influences a nation's money supply.
2.2 Categories of Fiscal policy
There are three main types of fiscal policy:
- Neutral: This type of policy is usually undertaken when an economy is in
equilibrium. In this instance, government spending is fully funded by tax revenue,
which has a neutral effect on the level of economic activity.
- Expansionary: This type of policy is usually undertaken during recessions to
increase the level of economic activity. In this instance, the government spends
more money than it collects in taxes.
- Contractionary: This type of policy is undertaken to pay down government debt and
to cap inflation. In this case, government spending is lower than tax revenue.
2.3 What is the Purpose of Fiscal Policy?
Generally speaking, the objective of fiscal policy is to promote sustainable economic
growth. There are a few key metrics that economists look at when gauging the overall
health of an economy. These include:
- Price stability. Price stability is measured by the rate of inflation, which is ideally
kept between 2–3%.
- Economic growth. Measured by the rate of Gross Domestic Product (GDP) growth,
also ideally between 2–3%.
- Employment rate. Measured by the unemployment rate, which most economists try
to keep between 4–5%.
2.4 What are the tools of fiscal policy?
There are two key tools of the fiscal policy:
- Taxation: Funds in the form of direct and indirect taxes, capital gains from
investment, etc, help the government function. Taxes affect the consumer's income
and changes in consumption lead to changes in real gross domestic product (GDP).
- Government spending: It includes welfare programmes, government salaries,
subsidies, infrastructure, etc. Government spending has the power to raise or lower
real GDP, hence it is included as a fiscal policy tool.

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 3. DESCRIPTION OF EVENT

3.1 Vietnam’s economy:

- The COVID-19 pandemic has been and will continue to negatively affect almost every
aspect of social life. Until now, when the epidemic situation in Vietnam has tended to
be under control, the economic downturn leading to job loss and income reduction has
become the most worrying and prolonged issue. According to data from the Ministry
of Labour, Invalids and Social Affairs, the number of employees working in the first
quarter of 2020 decreased by more than 680 thousand compared to the fourth quarter
of 2019. The unemployment rate did not increase, but the underemployment rate
increased from nearly 590,000 (1.22%) to more than 970 thousand (2.03%). Not to
mention the decline in total working hours as well as labor productivity due to the
COVID-19 pandemic.
56200 Employment rate of Vietnam 2,5

56000
2
55800

55600 1,5

55400 1
55200
0,5
55000

54800 0
Forth quater of 2019 First quater of 2020
Employees

- According to the General Statistics Office in 2020, in the first 4 months of the year,
the whole country has 37.6 thousand newly registered enterprises with a total registered
capital of 445.2 trillion VND and a total number of employees registered 315.7
thousand employees, a decrease of 13.2% in the number of enterprises, a decrease of
17.9% in the registered capital, and a decrease of 29.7% in the number of employees
over the same period last year. The average registered the capital of a newly established
enterprise in 4 months reached VND 11.8 billion, down 5.5% over the same period last
year. If including 680 trillion dongs of additionally registered capital of 11.7 thousand
enterprises changing to increase capital, the total amount of additionally registered
capital into the economy in the first 4 months of the year is 1,126 trillion dongs, a
decrease of 20.4 % compared to the same period last year.

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 The status of newly established enterprise in the first
4 months of 2019 - 2020
500 6E+11

400 5E+11

4E+11
300
3E+11
200
2E+11
100 1E+11

0 0
First 4 months of 2019 First 4 months of 2020

Newly registered enterprise Number of employees Total registered capital

=> This may lead to further consequences on social security and social inequality if the
intervention policy is not promptly adjusted for effectiveness.
3.2 Fiscal policy:

Vietnam in recent years has been assessed as one of the countries with stable economic
growth. Despite many impacts, Vietnam's economic situation still has certain changes. This
comes from the effective coordination between fiscal policy and monetary policy, and
social security policy of government and state banks. And we will dig deeper into fiscal
policy.
- Research and add solutions such as debt rescheduling, loan interest reduction for
indirectly affected enterprises and SMEs. Many businesses in industries that are not
directly affected by the Covid-19 epidemic, such as rubber and plastic, will face
difficulties because of slow cash flow, not being able to pay interest on time to
banks, leading to Interest expense on bank loans increased significantly.
- To soon have policies on exemption and reduction of consumption and income
taxes, especially personal incomes at the tax payment threshold of level 1, or micro,
small and medium enterprises to stimulate production and consumption. Currently,
only the payment of value-added tax, corporate income tax, personal income tax,
and land rent has been extended).
- The Government should have the policy to speed up the disbursement of projects
nationwide, especially projects already included in estimates and plans.
- Focusing on enhancing the practicality and effectiveness of the economic stimulus
package, preventing the abuse of support policies, ensuring that the stimulus
package is used for the right audience, objectively and transparently.

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 4. FISCAL IMPACTS

4.1 Revenue collection is expected to decline

The COVID-19 crisis presents unprecedented challenges to domestic revenue
mobilization (DRM) in EMDEs. From past crises we know that the effect on taxes
(especially direct taxes) exceeds the economic impact in scale and duration. The
unprecedented hit on cashflow and incomes of businesses and individuals puts a spotlight
on the dual challenge of revenue systems to provide relief for affected taxpayers and
manage a sudden large drop in collections.
The COVID-19 pandemic and related economic slowdown will lower government
revenues as a share of GDP as: (1) some tax bases are disproportionally affected by a
growth slowdown, including profits, capital gains, items with excises, and imports; (2)
commodity prices and related revenues decline; and (3) countries take steps to lower the
tax burden, for example by lowering of tax rates or scaling up incentives, in response to
the crisis. Revenue performance may be further harmed by operational restrictions in
revenue administrations due to health measures and related risk of worsened taxpayer
compliance.
4.2 Public expenditure will rise rapidly
The COVID-19 pandemic and related economic slowdown has an immediate impact on
the expenditure side though multiple channels:
Activation of automatic stabilizers in response to economic effects of the crisis on
household incomes and job losses. Automatic stabilizers are mechanisms built in
government systems that act as counter-cyclical measures to mitigate economic impact of
crisis, including unemployment benefits and various pro-poor programs. The principal
benefit of these programs is the ability to respond quickly and effectively to crisis through
social protection measures for the most vulnerable and affected households. Unfortunately,
the presence of these stabilizers is much less advanced and institutionalized among
developing countries, acting as a major amplifier of their vulnerability to economic shocks.
This is particularly true for lowest income countries whose social protection total
expenditure budgets are several times lower than in higher income countries.
Discretionary changes in expenditure policy in response to the crisis will push up
spending further. This includes increased budget allocations to health systems, additional
cash transfers, introduction of wage compensation schemes, and various support
mechanisms for targeted business and industries.
On the other hand, some budget allocations would be underspent due to
interruptions in implementation of programs and activities. The drastic behavioral changes

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produced by the pandemic will likely lead to significant underexecution of public
investment programs. A lack of personnel induced by social distancing and governments’
immediate focus on health crisis would slow down civil engineering works. The effect on
government investment is likely most pronounced in countries that fail to spend their
budgeted capital allocations in regular times. Underspending may also occur in certain per
capita/formula/rule-based spending items because of social distancing and lockdowns, for
example school meals (which many countries have counteracted with appropriate
measures), utilities, and operational maintenance. Unavailability of supplies due to supply
chain disruptions may further hamper government operations and spending. At the same
time, arrears and contingent liabilities in the public sector would pile up when public
entities start running out of cash because of lower revenues.

5. DATA COLLECTION
5.1 Fiscal measures in 2020
The government introduced a fiscal support package with the expected value of
VND 291.7 trillion (3.6 percent of GDP) to support the economy in 2020.
Measures include deferring payment of VAT and CIT tax obligations and land
rental fees by 5 months, deferring PIT payment to year-end (the estimated amount of
payments deferred is VND 180 trillion or 2.4 percent of GDP). More than 37 percent (VND
66.2 trillion) of the total tax and land rental deferral package was disbursed as of December
31, 2020.
Other measures executed included:
1. Cutting registration tax by 50 percent and deferring excise tax on domestically
produced cars
2. Lowering land rental by 15 percent
3. Reducing by 30 percent the environmental protection tax on jet-fuel from August to
December in 2020
4. Cutting or exempting various charges, cutting the CIT rate for small and micro firms
by 30 percent, and raising PIT deduction ahead of the plan.
Moreover, the government implemented the following measures:
Tax exemptions for medical equipment; lower business registration fee, effectively
from February 25, 2020 (one-year exemption of business registration tax for newly
established household businesses; first 3-year exemption of business registration tax for
SMEs);
Streamlined tax and custom audit and inspection at firms; and allowing firms and
workers to defer (up to 3 months) contributions to the pension fund and survivorship fund
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without interest penalty (total delayed contribution is estimated at VND 9.5 trillion or 0.1
percent of GDP).
The government also approved a cash transfer package worth VND 36 trillion (0.5
percent of GDP) for affected workers and households with monthly cash transfers provided
for no more than 3 months, from April to June 2020. More than 13 percent of the population
is estimated to benefit from this program.
The Ministry of Finance estimated that approximately VND 12.8 trillion (nearly 36
percent of total package value) was disbursed as of December 31, 2020, to the beneficiaries
under this Resolution. Coverage of the cash transfer program was expanded to also cover
the teachers of private schools.
=> The government targeted 100 percent disbursement of public investment capital in 2020
with the total value of VND 686 trillion or nearly 9 percent of GDP (of which VND 225
trillion was carried over from 2019). Disbursement of public investment in 2020 was
estimated to reach 83 percent of the budget plan, the highest disbursement rate over the last
five years.
5.2 Fiscal measures in 2021
Given Covid-19 has continued to heavily weigh on business and production, in
particular on the tourism and transport sectors, the government introduced the second fiscal
package in early 2021 which continued allowing tax deferral and land rental payment for
businesses and households with a total value of VND 115 trillion. In which, VAT for firms
is proposed to be deferred for 5 months with a total value of VND 68.8 trillion; CIT deferral
would be allowed for 3 months in Q1-2 with a total value of VND 40.5 trillion; deferral of
PIT and VAT for households, and land rental payment are expected to reach VND 1.3 and
4.4 trillion, respectively.
The reduction of the environmental protection tax on jet fuel by 30 percent is to be
continuously implemented until the end of this year.
Moreover, about 30 various types of fees have been cut by 10-50 percent till the end
of 2021 (mostly in the field of transportation and infrastructure development such as road
use fees, aviation service fees, construction project appraisal fees, so on) with an estimated
revenue reduction by 1 trillion.
Vietnam set up a Covid-19 Vaccine Fund run by the government in late May, which
is an extra-budgetary and non-profit fund to raise foreign and domestic donations and other
financing sources for purchasing vaccines, doing research, and producing vaccines. The
authorities have estimated that Vietnam may need VND 25.2 trillion ( USD 1.1 billion) to
purchase 150 million vaccine doses for 75 percent of its population in 2021.

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 6. DATA ANALYSIS
6.1 Formula of GDP:

GDP = C + I + G + NX
- (C) Consumption
- (I) Investment
- (G) Government Spending
- (NX) Net Exports = Exports - Imports

6.2 Impact of Corona pandemic:

- (C) Consumption decreased (due to not gathering, avoiding eating)
- (I) Investment decreased (due to the absence of customers, not reducing
investment in business expansion)
=> The above double impact leads to a serious decrease in GDP Vietnam (the first 2
quarters of 2020)

Vietnam's GDP growth in 2020 is among world highest, at 2.91%: GSOVietnam's GDP growth in 2020

6.3 Responses to covid19

To ensure that the economy overcomes difficulties, another factor in the GDP calculation
formula must be promoted. => Based on Government Spending
+ Specifically: The difference that the government receives from government
organizations and individuals compared to government activities such as social
welfare, construction of roads and bridges, investment.

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 + Apply the above formula to save the economy => Lower taxes and spend more
+ There are two ways to do:
1. (SPEND MORE) Create more jobs for people -> Have a stable income ->
Confidently spend more money.
2. (LOWER TAX) Reduce taxes for businesses -> Create conditions for
businesses to invest and develop-> Create more jobs for the economy.
=>The above method is also the fiscal policy that the state is applying and more
specifically, expansionary fiscal policy.

6.4 Policies to overcome the impact of the Covid-19 epidemic, in order to recover and
develop the economy
- The forecast revision comes on the back of the government’s announcement on
March 3 that it plans to spend 27 trillion VND (1.16 billion US) to help businesses
cope with the Covid-19 epidemic and help the economy stick to its 6.8% growth
target in 2020, including tax breaks, delayed tax payments, a reduction in land lease
fees, and an acceleration of state spending on infrastructure projects.
- The government introduced a fiscal support package with the expected value of
VND 291.7 trillion (3.6 percent of GDP) to support the economy in 2020. Measures
include deferring payment of VAT and CIT tax obligations and land rental fees by
5 months, deferring PIT payment to year-end (the estimated amount of payments
deferred is VND 180 trillion or 2.4 percent of GDP). More than 37 percent (VND
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 66.2 trillion) of the total tax and land rental deferral package was disbursed before
January 1, 2021

- Based on the falling revenues due to the Covid-19 pandemic so:

+ The expectation of fiscal deficit in 2020: 5.6% of GDP
+ But the real fiscal deficit in 2020 is just 4% of GDP

 The data show that Vietnam had good preparation to minimize the loss of
revenue by the effect of Covid-19, also encourage and support businesses and
employees to continue to work.
6.5 Multiplier effect
On the contrary, in a rapidly growing economy -> The government needs to apply a
contractionary fiscal policy.
● So how much money does the state give out, how much money does the
economy receive?
- The reality is not so simple because in economics one person's cost is another
person's income.
=> Because of such an economic impact, the fiscal value will be much larger than
the original
● Application:
Suppose the state gives Vingroup a rescue package worth 1.000.000 VND:
- Vingroup saves 300000 VND and uses 700000 VND to buy Vinamilk's milk.
- Vinamilk saves 20000 VND and uses 500000 VND to buy services of Viettel.
- Viettel saves 200000 VND and uses 300000 VND to buy services of Massan
customer.
=> Total economic value through exchanges is 2.500.000 VND

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=> With 1.000.000 VND of a rescue package, the state has generated at least 2500000 VND
according to the formula:

Multiplier = 2500000 / 1000000 = 2.5 => In economics called Multiplier effect

6.6 At first glance the calculation method seems simple and beneficial, but in fact
everything is much more complicated.
- The economy of a country is usually divided into two sectors: the public sector
and the private sector
- We have an economy that is divided equally between the public and private
sectors
1. Case 1: the economy is in trouble => Creates unemployment
+ To promote the economy the government is close to building more roads and
bridges to create jobs for workers from the region => This is a good situation
when public spending has helped the economy make the most of its resources.
2. Case 2: The economy is developing stably
+ The state is increasing projects again => In fact, the state is transferring resources
that are being used stably from the private sector to the public sector => Making
the private sector lack of resources and can be held back development (This is
also known as Crowding out effect)

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 7. RESOLVE SOLUTIONS

7.1 Overall assessment of the fiscal policy established by the Governments to response
the effect of Covid-19
- Mr. To Trung Thanh - Head of the Department of Scientific Management, National
Economics University, said the effectiveness of the policies support are distributed
unevenly, according to which there are some policies that have worked well, while
many effective policies are still very limited.
- Pros: Specifically, some of supportive policies that have had positive effects such as
the policy of 15% reduction in land rent payable in 2020, have attracted a large
community such as businesses, organizations, households, families and individuals are
entitled to the policy.
- Cons: In the opposite, there are still many policies to support the implementation
efficiency is not high. For example, the implementation of a social security support
package of VND 62,000 billion for employees who have been delayed, postponed or
lost their jobs due to the impact of the pandemic. According to the research team's
survey, as of August 2020, this package has only supported about 16 million people,
with the total disbursement amounting to just over 17 trillion VND (approximately 19
trillion VND). In particular, the most supported people are workers with insurance,
workers with meritorious services, and poor households. Meanwhile, the workers who
are most affected are self-employed workers, and disadvantaged workers in the
informal sector do not have access to this support package.
 In the short term, it is possible that fiscal policy to reduce taxes, fees and charges
can reduce budget revenue. However, those policies in the long run will support
businesses with investment capital to develop production and business, from
having new sources of contribution back to the budget.

7.2 Evaluation of the implementation of long-term fiscal policy in Vietnam

Looking back over the past 5 years, fiscal policy has been closely and flexibly managed,
closely following the guidelines and resolutions of the National Assembly and
Government. Through that, many positive results have been achieved, including:
- Budget revenue mobilization reached 24% - 25% of GDP (beyond the plan of 23.5%
of GDP); revenue structure has changed positively.
- The proportion of domestic revenue increased from 68% in the period 2011 - 2015,
to about 85% in 2020; the estimated proportion of development investment spending
increased from 26.2% of the 2018 estimate to 26.9% of the 2020 estimate, achieving
an estimate of over 28% (beyond the target of 25% - 26%).

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 - The proportion of recurrent expenditure estimates decreased from 61.8% of the 2018
estimate to 60.5% of the 2020 estimate; the average overspending in the five years
from 2016 to 2020 is less than 3.9% of GDP, in line with the period target; public
debt was improved, decreasing from 63.7% of GDP in 2016 to about 55% - 56% of
GDP in 2020.

8 CONCLUSION

To sum up, through this report:

- One can better understand Fiscal Policy - the basic theorem of economic and know
how the government can control a nation's economy
- With many specific examples - the strapping influence of covid-19 to the economy
of Vietnam, it is easy to imagine practical problems.
- Vietnam needs to make more efforts in restructuring budget expenditures to
reduce both public debt and budget deficit.
- Budget spending on health needs to be increased, but attention should be disclosed
in budget reports.
- The government needs to continue to improve transparency and accountability in
budget revenue and expenditure at all levels of society.
- With specific solutions, one can based on these to improve their economy.

From the statistics above, fiscal policy contributed to:

- Stabilizing the macroeconomy, cut down difficulties for businesses, and attracting
new investment.
- Promote economic restructuring, strongly improve transport and irrigation
infrastructure.
- Invest in agriculture and rural areas, at the same time expand the area and improve
the level of social security and society.
- The socio-economic situation in the country is increasingly changing positively and
comprehensively in many aspects and improving the national prestige and
credibility of Vietnam in the international arena.

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 9 REFERENCE

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