Eased restrictions, lower taxes can boost consumption

Editor's note: China aims to keep its economy growing within an appropriate range, realize steady gains in total factor productivity and achieve a notable increase in the share of household consumption in the GDP over the next five years. Yin Yanlin, a member of the 14th National Committee of the Chinese People's Political Consultative Conference, spoke to National Business Daily on how this goal can be achieved. The views don't necessarily represent those of China Daily.

The steady gains in total factor productivity reflect the innovation-driven nature of high-quality development. Letting innovation play its role leads to increased total factor productivity.

The share of household consumption in GDP is relatively low in China. The goal of "achieving a notable increase in household consumption" aims to bolster the role of domestic demand in economic growth.

It's worth pointing out that domestic demand includes not only consumption, but also investment. The central authorities stress the need for appropriate growth in investment over the next five years. It's not right to assume that the country will only focus on consumption and overlook investment.

China's urbanization is continuing to advance, and remains an important engine of economic growth. Although the urbanization drive has slowed, there are still hundreds of millions of residents in rural areas that need to be urbanized.

Some people who have both the financial capability and willingness to spend are unable to do so because of various restrictions, such as those on automobile and housing purchases.

Releasing such demand will directly boost sales, thus expanding aggregate demand and promoting economic growth. Economic growth will in turn lead to increased incomes.

Boosting the consumption of big-ticket purchases such as automobiles and housing will yield results more quickly and have a ripple effect across other sectors. The loosened restrictions and increased trade will also bring more revenue for the government.

I have long advocated for raising the minimum threshold for individual income tax and moderately lowering the highest marginal tax rate, which currently stands at 45 percent. The minimum threshold can be raised from 5,000 yuan ($707) to 8,000-10,000 yuan. Raising the minimum tax threshold and lowering the highest marginal tax rate would increase disposable personal income.

Of course, the lowering of taxes would lead to a decrease in government revenue. However, the decrease in revenue would be limited because individual income tax accounts for about 8 percent of the country's total tax revenue. Besides, the 45 percent marginal tax rate applies to a very small number of people, so the impact of a lowered marginal rate on government revenue would be controllable.

Increasing the disposable income of citizens through tax cuts will generate a better result than secondary distribution. The low minimum threshold for individual income tax leads to a heavy tax burden on people in the middle-income group, who have seen decreased property income and greater mortgage pressure due to the readjustment of the stock market and the real estate market. Improving their disposable income can give a significant boost to consumption.