NDRC Expert: Reform tax, labor policies to tackle wealth gap

15:54, August 24, 2010      

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China should include a reduction in the Gini coefficient, a measure of wealth disparity, in its 12th Five-Year Plan, because the reform of income distribution cannot wait any longer, said Yang Yiyong, director of the Research Institute for Social Development under the National Development and Reform Commission, on Aug, 23.

"China should be proactive rather than reactive in curbing the widening wealth gap," Yang said.

According to international standards, a Gini coefficient of 0.3 or less indicates substantial equality, between 0.3 and 0.4 is generally considered to be within the normal range, 0.4 or more requires special vigilance and 0.6 or higher is extremely dangerous because it may cause social unrest.

Statistics from the National Bureau of Statistics show that China's Gini coefficient, which has been above 0.4 since 2000, rose to nearly 0.5 in 2006.

Yang said among the 150 countries that have adopted the Gini coefficient as a measure of income inequality, only less than 10 countries including China and certain countries in Africa and Latin America have a Gini coefficient higher than 0.49.

Yang thinks that the rural-urban income gap is the largest contributor to China's high Gini coefficient, and the main cause for the income gap is the restricted movement of labor. Once labor can move freely from one place to another, the dream of equal pay for equal work will come true.

Wages usually account for about 50 percent of business operating costs in developing countries, while in China, the figure is less than 10 percent. In other countries, wages are decided through collective bargaining and sometimes pegged to companies' revenues. In China however, common workers do not participate in management.

"The All-China Federation of Trade Unions is studying ways to allow workers to set up their own trade unions, and union chairmen may get paid by workers rather than companies in the future," Yang said.

He also suggested that personal income tax should be levied more comprehensively on a family basis. Comprehensive levy refers to levying taxes on one family as a unit. For example, if a person, who earns 3,000 yuan a month, is the only bread-winner in a three-member family, it is like each member earns 1,000 yuan a month, which is below the income tax threshold, meaning that the bread-winner does not need to pay personal income tax if it is levied on a family basis.

Yang believes the government should change the method of income distribution through structural reform and institution building, so ordinary workers can receive higher incomes. He is opposed to relying on the third distribution of income such as charitable acts from the rich to solve the problem of the wealth gap, and also opposed to returning to egalitarianism.

Yang proposed that efforts should be made to reduce the Gini coefficient in the following steps. First, the increase in the Gini coefficient should be stopped in the 12th Five-Year Plan period. Second, the Gini coefficient should be reduced slightly by 2020, and third, the Gini coefficient should be reduced significantly by 2030.

By People's Daily Online


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