China's Rural Taxes Reduction Lifts the Lid of Political Reform

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Last updated at: (Beijing Time) Thursday, August 22, 2002

China's Rural Taxes Reduction Lifts the Lid of Political Reform

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A nationwide campaign to cut off assorted taxes and fees wantonly imposed upon farmers is now spreading across most parts of China.

If successful, the reform will not only restructure the financial mechanism of China's village and town authorities, but will also re-draw the country's rural political landscape, or even re-shape the grass-roots power regime of China.

Relative to the great weight attached to the mission, this round of rural taxes-&-fees reform appears so far unusually quiet: No public key-note speeches by members of the Standing Committee of the Political Bureau of Chinese Communist Party's Central Committee, no rolling publicity in the media, and even fewer frequently-heated wrangles among academics.

Just like what happens after dropping a stone into a seemingly bottomless canyon, people are waiting: What might come up?

But both the Party and the central government are determined to push it farther, despite its unfathomable prospect.

With some experiments in central China's Anhui Province since March 2000, the reform was intended to be applied throughout the country in 2001. But in last April, the State Council, China's cabinet, suspended it.

Grass-roots authorities at village and town levels opposed the reform, pleading that the taxes-&-fees slash had driven them nowhere to find money for the primary education to farmers' children, and, more importantly, that staff at village and town administrations can hardly get their salaries paid.

In one word, the grass-roots governments would be tattering to stop operating if the central government canceled the taxes and fees on farmers.

After a nearly one-year reconsideration, the central government issued a circular in April of this year, saying "go ahead".

A hard-negotiated compromise

The main content of the reform includes first to slash quite a few taxes and fees levied upon farmers by village and town governments in various names; then to combine all the remaining into one agricultural tax with a surtax, the total after the combination should be not more than 8.4 percent of an aggregate farming output. In the pilot Anhui Province, the aggregate farming output is the average of the farming output during the five years before 1998, although other provinces might have their own calculations in terms of their actual conditions.

After the re-frame, all the other spending by village and town authorities must first negotiate with farmers under their jurisdiction, if they want to impute it into the latter's account.

In 1998, all taxes and fees shouldered by farmers amounted to 122.4 billion yuan (US$14.8 billion), which will drop by 60 ~ 70 billion yuan (US$7.25 ~ 8.46 billion) if computed in line with the new tax formulation.

To fill the gap, the central coffers will transfer a limited sum of money to the local finances, but the latter must figure out ways to make the ends meet largely on themselves.

One key step, the central government hopes, should be to de-fatten the overstaffed bureaucracies of local authorities.

According to official statistics, there are now in China 45,000 local governments at the level of villages and towns, with 3.8 million village or town cadres and 128 million staff who feed on local fiscal money. On average, 40 farmers will have to support one cadre.

Apart from fiscal subsidies by the central and provincial governments, village and town governments must explore resources for another about 30 billion yuan (US$3.63 billion) if they maintain their current personnel size.

No retreat

Provincial governments' responses to the rural taxes-&-fees reform are quite mixed.

For those coastal provinces, there are no big problems: Their robust commercial and industrial sectors have risen as their main tax bases, they don't need to press too much against farmers, who are now earning their living more on commercial and manufacturing businesses than the meagre plots of farming land.

The traditional agricultural provinces in central and western China will have to bear the brunt.

With the fixed and reduced agricultural taxes, which usually contribute almost 80 percent of their fiscal revenues, village and town administrations will be hardly able to sustain themselves.

As for their difficulties in supporting the rural primary education, the central government knows well that they are, in some sense, just an excuse of village and town cadres to continually milk the central finances.

The annual spending on rural Children's education is merely 60 billion yuan (US$7.26 billion), a small number which the central government can pay solely.

So, the issue of reducing the taxes and fees on farmers has now changed to this: Whether and how to feed the mammoth bureaucracy of the grass-roots power regime.

This has always been the fragile layer of China's centralized power pyramid in its long history.

Ever since at least Tang Dynasty (618-907 AD), how to fill in the "fiscal black hole" due to the ever-expanding bureaucracy has always been the racking headache of all ruling elite.

But eventually, nearly all once glorious empires fell due to, at least partly, their incapability of curbing the insatiable bureaucratic predation through numerous taxes and fees.

Some academics have suggested completely dismantling the village government, a connective link between the county administration and farmers' communities.

If so, the overall size of the grass-roots bureaucracy may be reduced, but the central government will fear that this might make it harder for its voice to reach farmers fully and truly.

The central government has been encouraging a sort of self-governance in countryside: Farmers elect their own community leaders, map out their own management regulations, and form their own governing bodies compatible with their customs.

But no mature molds have taken shape out of some scattered experiments so far.

Nevertheless, there seems to be no way to retreat for the Chinese Government: Without effective reforming measures, farmers' dissatisfaction will also trigger instability.

"This round of rural taxes-&-fees reform is a profound and far-reaching revolution, which cannot be accomplished once and for all," according to the leading People's Daily.

"The times, targets and conditions of the current reform is substantially different from all similar attempts by all feudal dynasties, but we must be fully aware of its complexity and toughness," the newspaper said.

For Chinese policy-makers, here actually comes an ordeal for their political wisdom.

By PD Online staff Forest Lee

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