Zhang Monan

Balancing wealth distribution

By Zhang Monan (China Daily)
Updated: 2011-04-25 07:59

To effectively avert the intensified Matthew Effect in social wealth distribution, where the rich get richer and the poor get poorer, China should launch comprehensive institutional reforms.

Undoubtedly, the increased individual income tax threshold is an important step toward reforming the country's taxation system, which is meant to regulate the wealth gap and promote a reasonable distribution of social resources. However, regulation of personal income distribution alone is not enough. What the country should do more urgently is improve its property reporting system and levy taxes on all kinds of properties of a person, including his or her real estate, capital earnings, inherited property, and donations.

In developed countries, a set of well-developed property taxes has been established as a major means to correct and regulate wealth distribution imbalances. Statistics show that in the US, Britain and Canada, property taxes account for more than 9 percent of their fiscal revenues. The proportion is 5 to 7 percent in Japan, New Zealand and Australia. Even within the Organization for Economic Co-operation and Development (OECD) members, property tax accounts for 3.1 percent of fiscal revenues. In China, however, the proportion is much lower, meaning the tax fails to play its due role in regulating social wealth distribution.

In many developed countries, property taxes are mostly used to develop the social security system. For example, the lion's shares of property taxes in the US are used for education.

China should also optimize its taxation management system and moderately shift its taxation power from the central government to lower-level governments to extricate some local governments from their excessive dependence on "land-based" revenue policy. Statistics show that China's local governments earned a total of 2.7 trillion yuan from selling land in 2010, an increase of 69.4 percent on 2009. The income from land sales accounted for 71 percent of local governments' fiscal revenues, 22.2 percentage points higher than the previous year.

To free local governments from their land-dependent revenue, the current fiscal policy that is excessively tilted to the central government should be changed, a move that would help local governments assume more responsibility for offering public services.

China should try to set up a taxation system based on the accurate evaluation of the value of people's properties as soon as possible. This will not only help China ease its ever-widening gap in wealth distribution, but will also help gradually establish fair and highly-efficient central and local fiscal systems.

The author is an economics analyst with the State Information Center.

(China Daily 04/25/2011 page8)