Preventing wealth polarization

By JIA KANG and SU JINGCHUN | China Daily Global | Updated: 2022-07-27

ZHANG YUJUN/FOR CHINA DAILY

Reform of the income distribution system imperative to reduce the widening income gap in China

China has to address the widening income gap as it is a challenge to social stability and economic development. The current fiscal arrangement plays a less-than-satisfactory role in the redistribution of income, the fiscal spending on public services is not enough, and the urban-rural disparity in the provision of public services is enormous. For years, the Gini coefficient has exceeded the warning line of 0.4 and the urban-rural income ratio has been hovering between 2.5 to 3.1. When the differences in the quality of public services provided are taken into account, the urban-rural disparity is even larger. In a word, the government needs to spend more on improving people's welfare.

The mismatch between the government's responsibility and fiscal power hampers the fair distribution of wealth. A tax-sharing system introduced in 1994 defines the respective responsibilities and fiscal powers of the central and local governments. In recent years, the costs of some rural basic public services, such as compulsory education, healthcare, and social security, which used to be borne by rural residents themselves, have been covered by the fiscal budgets of the local governments. This, on the one hand, has reduced the financial burdens on farmers, but on the other hand, has weighed on the fiscal health of the local governments.

The role of government transfer payments in income redistribution is still weak. Although China has made marked progress in improving the transfer payment system to narrow the income disparity among different regions and different groups, there remain some problems to be solved.

In economic development, equal importance should be given to efficiency and equity to prevent wealth polarization. To tackle the problem, reforms are needed.

First, what a modern market economy requires is a multi-level taxation system composed of many types of tax. To narrow the income gap via multiple channels, China needs to build a complete taxation system including value-added tax, consumption tax, resources tax, environmental tax, corporate income tax, individual income tax, property tax, inheritance tax and gift tax, and social security tax.

For instance, levying an inheritance tax can help prevent the income gap from widening because an inheritance tax could make up for the deficiency in individual income tax, which targets only the formal incomes of residents, and make redistribution of social wealth fairer by taxing the informal incomes of a testator during his or her lifetime.

Second, the fiscal spending structure should be optimized and investments in basic public services ramped up. More fiscal resources should be channeled to improve people's livelihoods, to strengthen areas of weakness concerning rural areas, agriculture and farmers, and to promote the development of less developed areas. It is also imperative to allocate more fiscal resources in favor of underprivileged groups.

Third, the fiscal relations between the central and local governments need to be straightened out. It is necessary to properly define the respective fiscal powers and responsibilities of the central and local governments. The delivery of public services concerning people's essential needs should be partially undertaken by the central government, along with the handling of issues related to resources and environmental protection. Also, cross-region judicial and administrative duties should be in the hands of the central authorities. Local governments should have corresponding fiscal powers and it is important to accelerate the building of a local taxation system.

Fourth, the transfer payment system should be reformed to ensure equitable access to basic public services. Efforts should be made to streamline the transfer payment system and improve the allocation methods for transfer payments. Management of funds earmarked for transfer payments and other special purposes should be improved. It is also necessary to explore new approaches to cross-regional transfer payments and improve the transfer payment mechanism to provide better basic public services to migrant workers.

Fifth, the social security system needs to be improved to moderately raise residents' transfer income. It is important to improve the social insurance system and strive to cover all citizens. The social insurance coverage of migrant workers and people flexibly employed should be markedly increased. The building of urban and rural social assistance systems should be coordinated. The old-age insurance system for urban employees should be improved, and efforts need to be made to develop a multi-tiered and multi-pillar pension system which comprises basic pensions, enterprise annuities and commercial insurance products voluntarily purchased by individuals. Individual tax-deferred commercial endowment insurance should be introduced.

The country needs to push for nationwide unified management of the employee basic pension fund, improve the system of personal pension insurance accounts of urban employees and build the incentive and constraint mechanisms for pension contributions. The unemployment and work-related injury insurances should play a bigger role in protecting the rights of employees, and the insurance contribution rates should be adjusted more flexibly. A more convenient social insurance transfer mechanism should also be established. Some State-owned assets need to be transferred to social security, and investment channels should be expanded for social security funds to increase investment returns with proper emphasis given to risk management.

Jia Kang is chief economist of the China Academy of New Supply Side Economics. Su Jingchun is an associate professor at the Chinese Academy of Fiscal Sciences. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

贾 康 简 介

第十一届、十二届全国政协委员、现任全国政协参政议政人才库特聘专家，华夏新供给经济学研究院创始院长，中国财政科学研究院研究员、博导。曾长期担任财政部财政科学研究所所长。北京、上海、福建、安徽、甘肃、广西、西藏等地方政府特聘专家、顾问或咨询委员，北京大学、中国人民大学、国家行政学院、中央社会主义学院、南开大学、武汉大学、厦门大学、安徽大学等多所高校特聘教授。1988年曾入选亨氏基金项目，到美国匹兹堡大学做访问学者一年。1995年享受国务院政府特殊津贴。1997年被评为国家百千万人才工程高层次学术带头人。多次受党和国家领导同志之邀座谈经济工作。担任2010年1月8日中央政治局第十八次集体学习“财税体制改革”专题讲解人之一。孙冶方经济学奖、黄达—蒙代尔经济学奖和中国软科学大奖获得者。国家“十一五”、“十二五”、“十三五”规划专家委员会委员、国家发改委PPP专家库专家委员会成员。2013年，主编《新供给：经济学理论的中国创新》，发起成立“华夏新供给经济学研究院”和“新供给经济学50人论坛”（任首任院长、首任秘书长，第二届理事会期间任首席经济学家），2015年-2016年与苏京春合著出版《新供给经济学》、《供给侧改革：新供给简明读本》以及《中国的坎：如何跨越“中等收入陷阱”（获评中国图书评论学会和央视的“2016年度中国好书”）》，2016年出版的《供给侧改革十讲》被中组部、新闻出版广电总局和国家图书馆评为全国精品教材。2017-2020年又撰写出版《供给侧结构性改革理论模型与实践路径》、《供给侧改革主线上的未来财税》、《财政学通论》等多部专著。2021年与刘薇合作《双循环新发展格局》一书又获评“2021年度中国好书”。根据《中国社会科学评估》公布的2006～2015年我国哲学社会科学6268种学术期刊700余万篇文献的大统计分析，贾康先生的发文量（398篇），总被引频次（4231次）和总下载频次（204115次）均列第一位，综合指数3429，遥居第一，是经济学核心作者中的代表性学者。

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做学问的甘苦，如鱼在水，冷暖自知，不足为外人道，但关于做学问的“指导思想”，我愿意在此一披襟怀：写出一些论文或著作并不是目的，这是探索之途上的一小步，是争取为人类的思想认识之海中加一滴水。我深信，一切人生的虚荣浮华都是过眼烟云，而真正的学术和真知灼见，才能垂诸久远。

—— 贾 康

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