Narrowing income gap

A draft plan to guide the reform of China's system of distributing income is expected to come out in October, when new arrangements will be adopted to narrow the increasingly wide income gap.

The draft, which hasn't been seen by the public, has been submitted to ministerial-level officials to solicit their opinions, according to reports.

Given China's serious polarity in income and wealth, it is important that the plan be disclosed to the public so that more opinions can be collected.

According to official estimates, China's Gini coefficient, which gauges income inequality, was slightly higher than 0.412 in 2010. A score of 0.4 indicates serious inequality. What is more worrisome is that various scholarly studies suggest the gap has been widening.

That will only aggravate social inequality and shake social stability. And it is important that the country prevent the gap from becoming greater; academic research has found the higher the Gini coefficient, the more likely people will be to save.

China is struggling to ensure its economy shifts from being primarily reliant on investment and exports to being built on strong and sustainable consumption. The public's propensity to save will certainly undermine the country's attempts to have a more certain means of achieving long-term economic growth.

To make things better, the taxes paid by middle- and low-income earners should be reduced, the income of the poor be increased and a social security network be built to ensure that the poor can become wealthier in a sustainable way.

Admittedly, China has made solid progress in these respects, especially in recent years, when it has acquired much more of the financial strength needed to achieve fast economic growth and collect more revenue.

But the country has much more to do.

For one, to ensure that any wealth accumulated by the rich is obtained legally and cleanly, it must plug systematic loopholes. It has been reported, for instance, that a lack of transparency has led to rent-seeking in some public projects.

Meanwhile, more revenue could be found for the purpose of improving social equality by raising taxes on the rich.

The two solutions are practicable. Yet, few efforts have been made to apply either, largely because of the threat they might pose to vested interests.

If nothing is done, these problems will only become thornier.

(China Daily 08/28/2012 page8)