Reforms seek to create larger middle class

08:23, August 27, 2010      

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China's top legislature, the National People's Congress (NPC), has proposed a quick launch of reforms in income distribution to curb the widening wealth gap in the country.

The proposal was included in a research report on distribution of national income completed by the Financial and Economic Affairs Committee of the NPC.

The research report proposes increasing the proportion of both residents' incomes and labor rewards in the nation's gross domestic product (GDP).

The reforms should seek to enlarge the middle class until it becomes the largest sector in society, the proposals say. The report also offers proposals on taxation and social security.

The legislature has not released further details on the proposed income distribution reforms.

The NPC, for the first time in history, completed 15 research reports on 14 major subjects from March to July to provide proposals for the formulation of the 12th Five-Year Plan (2011-15).

The reports were presented by Wang Wanbin, vice secretary-general of the NPC Standing Committee, at the bimonthly session of the committee, which opened on Monday.

The proposed reforms come at a time when more and more Chinese are complaining that the country's economic growth has failed to benefit their incomes.

The proportion of the total income that Chinese citizens receive from the distribution of national income fell sharply to 57.9 percent in 2007, compared to 68 percent 20 years ago, according to the People's Bank of China.

Zhang Jianguo, chief of the collective contracts department with the All-China Federation of Trade Unions (ACFTU), said in May that the proportion of China's GDP that makes up wages and salaries has been shrinking for 22 consecutive years.

In contrast, the proportion of returns on capital in the GDP increased by 20 percent from 1978 to 2005, he said.

About one-quarter of respondents in the latest ACFTU survey said their incomes have not increased in the past five years, while 75.2 percent of them said that the country's current income distribution is not fair.

According to a World Bank report, the Gini Coefficient for China, a main gauge of income disparity, surged to 0.47 in 2009, exceeding the "security line" of 0.4, pointing to the unequal distribution of income, which could arouse social unrest.

This figure was 0.21 to 0.27 three decades ago.

In the primary distribution of national income, the proportion that goes to wages and salaries for China's mid- and low-income families has been declining, according to Yi Xianrong, a researcher at the Chinese Academy of Social Sciences.

Other reports issued by the NPC propose that the reform in income distribution should be launched in combination with other measures, such as balancing the income increases among the government, enterprises and individuals, as well as increasing farmers' incomes.

The reports also include proposals such as reasonable improvement of the government's responsibility for fiscal spending, more stringent protection of farm land, the creation of a unified health insurance management system and an increase in the government's spending on education.

Tang Jun, a social policy expert with the Chinese Academy of Social Sciences, hailed the NPC proposals.

"To reform the income distribution system, an adjustment in taxation policy should be a key measure," Tang told China Daily.

Tang suggested that both the central and local governments reverse the current revenue collection and expenditure mode.

"The local governments should abandon the concept of 'the more revenue, the better' and decide the sum of revenue according to how much they will spend next year," he said.

Tang also suggested imposing a personal income tax per family to increase the earnings of low-income employees.

For example, in a three-member family with one child, if the husband earns 3,000 yuan ($441) per month while his wife is not employed, such a comparatively small sum of money should not be taxed, he explained.

The current baseline for personal income tax is 2,000 yuan each month.

Source: China Daily


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