Saturday, January 22

China targets wealth redistribution to boost ‘common prosperity’


President Xi Jinping tipped off China’s wealthiest citizens on Tuesday, offering a scheme for “common prosperity” that includes regulation and redistribution of income, according to state media reports.

Since Xi took office in 2012, the ruling party has made ending poverty and building a moderately prosperous society a priority, goals the party sees as fundamental to promoting well-being and strengthening its governance. Income inequality in the country is wide (the richest 20% earn more than 10 times the poorest 20%) and has not changed since 2015.

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Beijing has made enormous efforts to reduce poverty, especially in rural areas. More recently, he has targeted the higher end of the spectrum, with a crackdown on the tech industry, which has minted several billionaires, and criticism of the excesses of celebrity culture.

At Tuesday’s meeting of the Communist Party’s Central Committee for Financial and Economic Affairs, the government detailed new strategies to target the upper echelons. Officials promised to “strengthen regulation and adjustment of high income, protect legal income, reasonably adjust excess income, and encourage high-income groups and companies to give more back to society,” according to a published summary of the meeting. by state media Xinhua.

At the same time, officials also pledged to expand the size of the middle-income group, increase earnings for the low-income group, and prohibit illicit income to promote social equity and justice. He also reaffirmed Deng Xiaoping’s famous words of “letting some people get rich first”, adding that an environment will be created in which more people will have the opportunity to get rich.

Property taxes, inheritance

Economists say the measures suggest that Beijing may be getting closer to introducing property and inheritance taxes. Authorities have long talked about a property tax and have tried to tax residential property in Shanghai and Chongqing since 2011. A high-level meeting in May indicated that officials may be making renewed push to implement it.

“China’s wealth and income inequality has worsened to such a severe level that policy makers have no choice but to confront it and make addressing it a priority,” said Larry Hu, chief economist of Greater China at Macquarie Group. in Hong Kong. Xi’s meeting “took the issue to the highest level” and is an important sign of future political direction, he said.

Carol Liao, China economist at Pimco Asia Ltd., said capital gains taxes are also an option, as well as other measures to improve income distribution, such as improving social security programs, providing incentives for charity. and more government transfers to less developed regions.

China does not have an inheritance tax, and imposing it would have a major regulatory effect on the distribution of wealth, said Shi Zhengwen, professor of tax law at China University of Political Science and Law, quoted by Yicai financial news outlet. .

At the Xi meeting, officials pledged to provide conditions for people to improve their education and move up the income ladder. They also asked to promote equal access to public services by improving the supply of housing, care for the elderly and the medical system.

The meeting also highlighted the need to curb financial risks. Efforts should be made to strike a balance between ensuring stable economic growth and preventing financial risks, according to Xinhua.

Zhejiang experiment

The government identified the eastern province of Zhejiang, home to Alibaba Group Holding Ltd. and known for its robust private sector, as a pilot area for new initiatives.

Last month, Zhejiang published detailed plans to increase per capita disposable income to 75,000 yuan ($ 11,563) by 2025, which would be a 45% increase in five years. It also wants wages to account for more than half of its gross domestic product and to raise its urbanization rate to 75%.

To achieve these goals, the provincial government will encourage workers to collectively bargain for wages; listed companies to collect cash dividends for shareholders; and farmers to implement business strategies. It will also promote the development of financial products for the benefit of residents.

The roadmap also said the government will better protect the rights of those in new forms of employment, including delivery workers and drivers who work for trucking companies, and implement tax benefits for philanthropic donations.

© 2021 Bloomberg


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