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Buoyant tax growth

(China Daily)
Updated: 2008-07-25 07:30

A ballooning state coffer can considerably enhance the Chinese government's ability to strike a needed balance between inflation and economic growth.

When consumer prices rise too fast, policymakers can cushion poor families with targeted subsidies. And when the economy slows down too much during the war against inflation, fiscal stimulus can also be promptly adopted to boost economic growth.

In this sense, it is reassuring that China's tax revenues grew 30.5 percent year-on-year to 3.26 trillion yuan ($480 billion) in the first half of 2008.

Such fast growth of tax revenues will give the Chinese government ample room for maneuver in coming months if a US-led global slowdown poses threats of derailing China's economic growth.

It is widely believed that fiscal boost in the form of infrastructure investment, post-disaster reconstruction, and subsidies to households and corporate, could effectively keep the country's economic growth at the long-term trend of about 10 percent.

However, at a moment when the economy is undergoing an obvious slowdown and painful structural changes for sustainable growth, tax growth is by no means the faster the better.

Though tax authorities attributed the surge of tax revenues in the first half-year to largely a dramatic rise in corporate profits in 2007 and soaring import tariffs, it does not change the fact that individual and corporate taxpayers in the country have altogether paid a larger tax bill so far this year.

Chinese enterprises, especially those in the export sector, have already felt the pinch of domestic credit tightening and weaker external demand.

Reduction of tax rebates for resources-intensive and polluting exports is surely necessary. But it is also time to increase tax incentives to help energy-saving and environment-friendly exporters.

Meanwhile, individual income growth slowed as the national economy cooled. Urban and rural residents saw their real income grow by only 6.3 percent and 10.3 percent respectively in the first half-year, 7.9 percentage points and 3 percentage points less over the same period last year.

Accelerated income growth in recent years has become a major driving force behind a domestic consumption boom that is necessary for the country to shift away from its dependence on investment and export for growth.

Policymakers should attach more importance to further increase people's income than to collection of ever more tax revenues.

(China Daily 07/25/2008 page8)