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Transfer payments set to rise

By Xin Zhiming (China Daily)
Updated: 2008-04-17 09:41

The government is poised to pump in more money and adopt more favorable taxation policies to narrow the income and wealth gaps among people in different regions, senior fiscal officials said yesterday.

"We will increase the volume of transfer payments to ease fiscal difficulties of grassroots governments," Ding Xuedong, vice-minister of finance, told the 2008 Forum on Fiscal Reform in China.

In 2006, China scrapped the 2,000-year-old agricultural tax and other farming-related taxes, reducing the tax burden on farmers to the tune of 50 billion yuan ($7.14 billion) annually. But grassroots governments have suffered as a result, because these revenues constituted the bulk of their fiscal income.

Some economists estimate that governments at and below the county level have accumulated about 1 trillion yuan in debts.

In the coming years, the country will earmark more funds for rural development, Ding said at the two-day forum, which was themed on pro-poor fiscal reforms and capacity building in China.

The gap between the rich and the poor and between the eastern and western regions are widening, said Liu Shangxi, deputy director of the Research Institute for Fiscal Science.

According to the World Bank's World Development Report, China's Gini coefficient in 2006 was 0.47, crossing the internationally accepted warning line of 0.4. The gap in purchasing power is even larger, with consumption by the poor and in the less developed regions disproportionately weak, Liu said.

The weak purchasing power of more than 700 million farmers out of the country's 1.3 billion people has affected the drive to boost domestic demand and reduce dependence on exports, analysts said.

Subinay Nandy, country director of the United Nations Development Program in China, warned that such income and wealth gaps could lead to human development gaps.

"Recent data in China confirm that development gaps have emerged that go beyond income and consumption; wide gaps can be found in key human development dimensions such as health and education," he said in a paper prepared for the forum.

Ding said the country is planning to "accelerate" the pace of adjusting income distribution and more funds would be put in the rural economy.

"(We will also) increase support for charity and actively encourage development of the cause to direct social wealth distribution in a way that is conducive to fair distribution," Wang Li, deputy head of the State Administration of Taxation, told the forum.

China's taxation laws do not provide exemptions for corporate donations to charities. Analysts said this has dampened corporate donations.

Nandy said what China spends in sectors such as education and health is too low compared with its colossal GDP.